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Rally Reverses From Extremes


Core/semi-core EGBs have reversed lower from the best levels of Wednesday's session, with the ongoing rally stalling out somewhat after recent extremes in ECB cut pricing.

  • ECB cut pricing for 2024 hit 150bp in early trade on carryover from Tuesday's dovish Schnabel comments, and ECB's Kazaks sounding more dovish than usual this morning in an MNI event presentation (no need for H1 2024 cuts but if the outlook changed then so too might decisions on rates).
  • A big miss in German factory orders may also have played a role but as MNI noted, "core" orders were solid. Eurozone retail sales came in weak as well (though higher revision to prior).
  • ECB futures fully retreated though, with 2024 cut pricing back to around 143bp. While there was no apparent catalyst to the reversal, the move had arguably extended to extremes for now.
  • Bund futures (continuous contract) had ticked to the highest level since early June but retraced fully over the course of the morning to session lows though still well above Tuesday's open. The German curve sits modestly bear flatter.
  • In tandem, periphery spreads came off early tights, with BTPs now trading wider to Bunds.
  • The calendar is fairly light in Europe for the rest of the session.

Latest levels:

  • Mar Bund futures (RX) down 24 ticks at 134.74 (L: 134.63 / H: 135.18)
  • OAT futures (OA) down 25 ticks at 128.87 (L: 128.77 / H: 129.31)
  • Mar BTP futures (IK) down 29 ticks at 116.29 (L: 116.22 / H: 116.8)
  • Italy / German 10-Yr spread 1bps wider at 175.1bps

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