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German-US spreads tighten ahead of the ECB decision

BONDS
  • Core fixed income markets are seeing some divergence this morning ahead of the ECB (policy announcement due at 12:45BST / 7:45ET with the press conference due at 13:30BST / 8:30ET).
  • Bunds are lower while USTs are higher, leading to a tighter 10-year spread of about 4.3bp at the time of writing. However, volumes are very low ahead of the Easter break and with investors likely sitting on the sidelines awaiting the ECB announcement. Gilts are moving more in line with the German curve than the US curve today.
  • While consensus expects nomaterial change in policy at the April ECB meeting, the MNI Markets team believe that it is a close call and that markets should be prepared for a hawkish surprise. Markets currently price 17bp for July, 37bp by September, 47bp by October and 69bp by the December ECB meeting (so almost fully pricing three 25bp hikes by year-end).
  • Elsewhere we also have US retail sales, weekly claims and Michigan confidence numbers with the Fed's Williams, Mester and Harker all due to speak.
  • TY1 futures are up 0-6+ today at 121-00 with 10y UST yields down -2.3bp at 2.679% and 2y yields down -1.5bp at 2.336%.
  • Bund futures are down -0.34 today at 155.52 with 10y Bund yields up 2.3bp at 0.786% and Schatz yields up 1.4bp at 0.082%.
  • Gilt futures are down -0.17 today at 119.27 with 10y yields up 2.5bp at 1.823% and 2y yields up 1.1bp at 1.490%.
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