Softer Post-FOMC, Peripherals Widen

Bund futures did close the opening gap lower, but still got nowhere near testing pre-FOMC levels before some fresh selling came in. That leaves the contract -45.

• German cash benchmarks sit 3.5-5.5bp cheaper, bear flattening post-FOMC.
• Hawkish leaning comments from ECB Governing Council members will have helped cap the rebound. Flows in U.S. Tsys and gilts will have also weighed.
• ECB’s Kazaks warned that the recent lift in energy prices presents a structural shift, in turn posing upside risks to inflation. He also noted that he was "quite satisfied" with the current level of interest rates, although he is not ready to say peak levels have been reached, while he also pushed back on the idea of mid-’24 rate cuts. Finally, Kazaks noted that APP sales and the end of PEPP reinvestments should be discussed before the Bank considers cutting interest rates (he noted that a pre-requisite for the latter is inflation consistently undershooting target).
• Elsewhere, ECB’s Nagel pointed to still stubborn inflation, also noting that it is not clear if rate levels have peaked.
• Core/semi-core EGB spreads to Bunds are little changed to a touch wider.
• Peripherals widen vs. Bunds on as markets react to the FOMC, pressuring carry plays (BTPs 3bp wider vs. Bunds).
• French & Spanish supply was smoothly digested.
• Impending BoE developments are eyed.