Off Highs As Equities Stabilise

A brief rally in core/semi-core EGB futures was relatively short-lived, leaving contracts off intraday highs and slightly firmer on the day.

• Data and weakness in European equities seemed to allow the overnight rally to extend after core global FI markets regained some poise early this week.
• Most Eurozone countries registered improving manufacturing PMIs in May, with Italy the notable exception. However, Germany, France and the Eurozone’s readings remain in contractionary territory, with the latter two seeing small downward revisions vs flash readings.
• European equity futures have stabilised after a brief sell-off, helping Bunds away from intraday highs.
• Bund futures are +8 at 129.42, with a bear cycle still in play following last week’s sell-off.
• On Friday, S&P downgraded France’s credit rating to AA-, though spreads to Bunds are little changed at typing. German and French cash yields are 1.5 to 3bps lower on the day.
• 10-year peripheral spreads to Bunds are a touch tighter, supported by the late-Friday rally in equity futures and positive outlook tweak for Spain from Morningstar DBRS.
• IRISH spreads are little changed despite Friday’s positive Irish ratings action from Fitch.
• Attention now turns to this afternoon’s US survey data, while Thursday’s ECB meeting provides the Eurozone focal point of the week.