EGBS
Today's 30bp increase in the 10-year Bund yield to 2.79% is the largest 1-day move since 1990. While speculation around increased fiscal spending and debt brake reform has been prevalent in the lead-up to and following the February 23 election, the market has been caught off guard by the scale of incoming Chancellor Merz's announcements.
- For a comprehensive summary of the announcement and subsequent sell-side views, see here from our Political Risk Team.
- This afternoon, the Green party’s co-leader Katharina Droege said that whether her party approves the proposed constitution amendments “remains open”, while suggesting that debt brake reforms are a more “honest” option compared to special funds.
- Bund ASWs (vs 3-month Euribor) are -14.9bps at typing, after reaching an all-time low of -15.6bps earlier this morning.
- Bund underperformance sees 10-year EGB spreads to Bunds biased tighter. Our political risk team notes that no-confidence votes in Portugal and Greece are likely to fail.
- Short-end rates have been dragged lower by the long-end, with Euribor futures an impressive -10.5 to -34.5 ticks through the blues. Year-to-date lows mostly remain intact across the strip, with the exception of ERZ8.
- ECB-dated OIS have removed 17bps of easing through year-end, with 67bps of cuts now priced through year-end.
- The magnitude of today’s market moves alongside the broader macroeconomic effects of increased German stimulus will likely form a key part of tomorrow’s ECB press conference. See our ECB preview here.
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