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German/Greek 10y Yield Spread Tightens to Levels Last Seen in '21

BOND SUMMARY
  • Gilts remain somewhat capped by a brief stabilisation in equities, before fresh pressure in the equity space (FTSE futures moved to fresh session lows) and a post-IFO bid in Bunds provided support.
  • That allowed Gilt futures to move to fresh session highs, although well within the recently observed range in the contract.
  • Cash Gilts are 2-5bp richer, with the early bull steepening impulse still in play. BoE-dated OIS continues to price a terminal rate that is ~125bp above prevailing levels.
  • Meanwhile, 10-Year Greek paper outperforms to start the week as the market reacts to the ND's attainment of a parliamentary majority (which was in line with expectations) in the second round of the Greek national election.
  • The 10-Year GGB/Bund spread settles around 120bp, registering the tightest level seen since '21 in the process, while the 10-Year GGB/BTP spread tightens, but doesn't threaten cycle/all-time tights.
  • The round-number bias surrounding the 120bp level, coupled with the recent run of meaningful tightening and the fact that the election outcome matched wider expectations, is limiting the nature of the move in GGBs.
  • Focus now turns to any ad hoc commentary/action from the sovereign rating agencies, given the expected fiscal trajectory of Greece and heighted expectations surrounding the eventual attainment of IG status (DBRS Morningstar have the next scheduled update, which isn't slated until 9 September).
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