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Off Best Levels But Underpinned, OATs Continue To Outperform

EGBS
HomepageBond Market NewsBulletMarketsFixed Income Bullets

The latest extension higher in Bund futures fails ahead of 131.00, with the contract back to ~130.75 last.

  • German yields are 3.0-4.5bp lower, with a bull flattening bias maintained on the curve.
  • Spread-wise, most EGBs are tighter to Bunds, with French paper still outperforming across much of the curve given Friday’s rating reprieve, while SPGB spreads are unreactive to political developments (covered in greater detail earlier).
  • Our political risk team note that Spanish PM Sanchez's decision to remain in office does not mean that potentially market-moving political risk is in the rear-view mirror. Catalonia holds its snap regional election on 12 May. Given the elevated political rhetoric from both pro- and anti-independence parties this vote could cause issues between the centre-left pro-union PSOE and the pro-independence Junts, which the PSOE relies on for a majority in the Congress of Deputies. Sanchez could also face a confidence vote in parliament, even in light his decision to remain in office.
  • German CPI data was generally in line with the projections that we provided on the back of the state level data.
  • That data (along with the Spanish CPI readings), a modest downtick in TTF futures and a move lower in crude oil futures weighs on EUR 5y5y inflation swaps, providing background support to EGBs for much of the day.
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The latest extension higher in Bund futures fails ahead of 131.00, with the contract back to ~130.75 last.

  • German yields are 3.0-4.5bp lower, with a bull flattening bias maintained on the curve.
  • Spread-wise, most EGBs are tighter to Bunds, with French paper still outperforming across much of the curve given Friday’s rating reprieve, while SPGB spreads are unreactive to political developments (covered in greater detail earlier).
  • Our political risk team note that Spanish PM Sanchez's decision to remain in office does not mean that potentially market-moving political risk is in the rear-view mirror. Catalonia holds its snap regional election on 12 May. Given the elevated political rhetoric from both pro- and anti-independence parties this vote could cause issues between the centre-left pro-union PSOE and the pro-independence Junts, which the PSOE relies on for a majority in the Congress of Deputies. Sanchez could also face a confidence vote in parliament, even in light his decision to remain in office.
  • German CPI data was generally in line with the projections that we provided on the back of the state level data.
  • That data (along with the Spanish CPI readings), a modest downtick in TTF futures and a move lower in crude oil futures weighs on EUR 5y5y inflation swaps, providing background support to EGBs for much of the day.