Post-Fed Dovish Repricing Promotes Bull Steepening, ECB & BoE Up Next

Post-Fed repricing has dominated when it comes to early Thursday European bond trading. Core FI is a little shy of best levels but still comfortably firmer on the day.

• The European short end now shows ~160bp of ECB cuts through ’24, registering a fresh cycle extreme. The strip prices a little over 20bp of easing come the end of the Mar ’24 meeting.
• Bund futures are +120 ticks on the day, ~40 ticks shy of their session peak. German cash yields run 5-16bp lower, bull steepening. Bund futures broke through initial technical resistance levels, but 10-Year yields failed to challenge the 2.00% mark, bottoming at 2.029%, for now.
• Spreads to Bunds are generally tighter across the EGB space, with BTPs/peripherals outperforming on the dovish repricing of global central bank expectations.
• Many sell-side names have suggested that “well-behaved” peripheral spreads and the degree of monetary easing priced in provides a much more fertile ground for PEPP QT adjustment discussions, particularly in the wake of President Lagarde’s recent loose guidance re: the timeline for such talks. A reminder that no changes in ECB rates are seen today.
• BoE-dated OIS shows just under 120bp of cuts during ’24, with the first 25bp cut fully discounted come the end of the May ’24 MPC. The strip briefly priced 125bp of cuts (i.e. 5x 25bp moves) through ’24 at one stage. Cash yields are 7.5-18.5bp lower on the day, with the curve bull steepening. Gilt futures run +120, ~40 ticks shy of best levels.
• Focus re: today’s BoE decision is set to fall on the vote split and guidance verse.