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Looking ahead to the ECB and US GDP

BONDS
  • Despite a generally risk-off tone to equity markets this morning, core fixed income has move lower, albeit remaining within yesterday's trading ranges. The market is looking ahead to the ECB policy decision and press conference later today, as well as the first print of US Q3 GDP.
  • Bund and Treasury curves have both bear steepened this morning with moves in the German market of a greater magnitude ahead of the ECB. Gilts have seen the smallest moves in core FI today with the curve seeing a largely parallel shift.
  • The ECB meeting is the highlight of the day ahead. Markets are pricing in around 72bp (so almost fully pricing 75bp) while the MNI Markets team and the vast majority of analysts also look for 75bp. Reverse tiering or changes to the TLTRO conditions are expected to be discussed, with the MNI Policy Team noting that changes to the TLTRO interest rate were being considered ahead of reserve tiering (full piece available here). While President Lagarde may indicate that discussions on QT are advancing and that this would naturally follow the normalisation in policy rates, it seems premature at this stage for the ECB to unveil an explicit roadmap for shrinking the balance sheet. The full MNI ECB Preview is available here
  • Across the pond, the first print of Q3 GDP will be released today with the Bloomberg median looking for 2.4% Q/Q annualised, but analyst estimates are relatively split with a standard deviation of 0.68% and just under 2/3 analysts looking for a print in the 2.0-3.0% range. The Atlanta Fed GDPNow model looks for 3.1%. We will also receive US weekly claims data.
  • TY1 futures are down -0-13 today at 110-22 with 10y UST yields up 6.0bp at 4.065% and 2y yields up 3.9bp at 4.445%.
  • Bund futures are down -0.79 today at 138.08 with 10y Bund yields up 7.0bp at 2.179% and Schatz yields up 6.2bp at 1.998%.
  • Gilt futures are down -0.15 today at 101.70 with 10y yields up 3.1bp at 3.602% and 2y yields up 3.3bp at 3.273%.
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