Hawkish Holzmann Helps Space Lower, Before Support Kicks In

Bunds have continued to cheapen, with futures showing through Friday’s base before recovering from worst levels.

• Comments from ECB Governing Council hawk Holzmann underscored his desire to start the debate on ending PEPP reinvestments, while he also outlined his belief that the ECB is behind the curve and should assess policy settings when the deposit rate hits 4% (his hawkish words came as no real surprise given his historical leaning).
• The comments helped the contract to fresh session lows, before a downtick in global equity futures and a move off best levels for crude oil provided some support.
• Extensions lower would expose initial firm support at 131.20, the Aug 23 low. A stronger reversal lower and a break of this level would be seen as a bearish development.
• German cash benchmarks run 1.5-3.5bp cheaper as the curve flattens.
• EGB/Bund spreads little changed to a touch tighter with peripherals outperforming at the margins.
• EU supply had little impact on the space this morning, with a few EUR-denominated IG deals mandated.