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Nord Stream, Italy politics and Fed driving markets

BONDS
  • Gilts and Bunds are being pulled lower by Nord Stream concerns - as the flow of gas to Europe slows and gas prices rise, inflationary concerns build - with SONIA futures up to 5 ticks lower on the day and Euribor futures up to 3.5 ticks lower. This has pulled yields higher across the curve with the German curve bear flattening (but gilts steepening).
  • BTP spreads have widened after S&P yesterday adjusted the outlook for Italy from positive to neutral on concerns that the political uncertainty will slow reforms. 10-year BTP-Bund spreads are now around 240bp - notably above the 200bp level that Bank of Italy President Visco cited as the threshold for levels that would be unjustified by fundamentals.
  • Treasuries have been moving to the beat of their own drum this morning as the market looks ahead to the Fed statement and presser later. A 75bp hike is fully priced by markets with the focus instead on communication surrounding expectations for policy in September and onwards.
  • We will also receive durable goods data today, as well as US trade, inventory and pending home sales.
  • TY1 futures are up 0-0+ today at 119-28 with 10y UST yields down -3.1bp at 2.778% and 2y yields down -2.5bp at 3.031%.
  • Bund futures are down -0.01 today at 156.00 with 10y Bund yields up 0.7bp at 0.929% and Schatz yields up 1.8bp at 0.351%.
  • Gilt futures are down -0.10 today at 117.63 with 10y yields up 0.7bp at 1.922% and 2y yields up 0.2bp at 1.813%.
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