Off Lows, Supply-Related Hedging Passes

The passage of this morning’s EU & Belgian OLO supply removes any hedging-related headwinds, allowing EGBs to recover from session lows.

• The latest loosening of property market restrictions in the Chinese mega city of Shanghai may be factoring into the rally as well. Discussions surrounding the potential for relatively imminent Chinese macro policy easing continue to do the rounds.
• Bund futures retake 130.00, trading as high as 130.19 on the recovery. That compares to session lows of 129.84.
• German cash yields are ~2bp lower across the curve, while 10-Year EGB spreads to Bunds are little changed to a touch tighter on the day.
• Some suggested that ECB chief economist Lane’s focus on the need for restrictive policy settings throughout ’24 was a hawkish driver, but that idea seems to align with the prevailing view given by most of the GC.
• Rates will still be at restrictive levels after the widely expected June cut and most have been unwilling to sign off on the idea of back-to-back rate cuts at this stage. Some of the more hawkish voices have even suggested that such a move is unlikely.
• Peripheral spread performance, coupled with little net change in ECB-dated OIS on the day, pushes back against the idea that Lane’s comments were a meaningful major driver of rates in early Monday trade.
• Lane is due to speak again shortly (12:00 London), with GC hawk Holzmann due this afternoon.