Mizuho Look For Support From The ECB

Mizuho note that the "bear widening we saw of curves on Friday seemed to be a knee-jerk reaction to the US market moves rather than much more fundamental. Flows should be a bit lighter than usual today given that US markets are closed for Labor Day. At Thursday's ECB, Lagarde will likely be commenting on sluggish core-inflation, headline deflation, a slowing rebound and a divergence in the PMIs. This does not leave much room for hawkishness. We see the likelihood for a strongly dovish tone to triumph, in which flexibility to increase the PEPP envelope will be the most attractive policy lever. Consequently, EGBs should see support, particularly in the semi-core and periphery. Right now, we see relative attractiveness within 10Y Spain vs France and Italy (DV01 wgt: 30% Italy, 90% France, 100% Spain). The supply outlook to the end of the year should support this view, however for this week, we expect Spain to come to market to syndicate a new 10Y benchmark (Tue or Wed). We would therefore wait until this supply comes to market, ahead of the ECB in order to gain further from the concession there."