Natixis: Painful And Probably Overreacting

Natixis note “European bond markets remain under pressure with a bear steepening move and the rise in real yields led by the U.S. and the "higher for longer" story.”

• “Sovereign spreads have not been immune from the bear market, in line with the repricing observed in the credit market.”
• “It's quite uncertain to determine conditions for a rally, but it's likely to come from the U.S., where a more consequential deterioration in U.S. macro and the labor market could trigger.”
• “Our U.S. economists continue to believe that U.S. macroeconomic conditions will deteriorate in Q423. In the Eurozone, our economists think that core inflation will continue to decelerate but this condition seems to be already priced in.”
• “By maintaining a restrictive bias well into 2024, the ECB will continue to exert a decisive influence on long-end too: we target the 10Y Bund at 2.75% by the end of the year.”
• “The Fed is still sailing within sight, and Q4 Treasury issues are saturating demand for the time being: the slowdown in macroeconomic activity is likely to trigger a bond rally, and we expect a 10Y UST at 4.00% by the end of the year.”