Spreads driven by coordinated issuance talk

BTPs are off their highs and Bunds off their lows (but 10y spreads are still almost 12bp tighter) after the initial reaction to the Bloomberg story that the EU could issue bonds to finance military and energy infrastructure.

• This would benefit peripherals as it would mean less issuance would be required at a national level, and the funding could be achieved at a lower yield than through domestic issuance (hence the move in spreads).
• This obviously adds to the guarantees in place from the core countries for the joint debt (and as EU debt trades at a higher yield to German debt, sees little benefit for Germany, other than the knock-on benefits of Eurozone-wide lower inflation (and increasing the chances of avoiding stagflation in the Eurozone as a whole).
• It would also reinforce the precedent set initially during the pandemic, that a large economic shock that hits the whole of the Eurozone, is now much more likely to be met with a Eurozone-wide response which includes further debt issuance. So the reaction function of the EU to economic crises seems to have changed.
• This last point is what is still helping to drive Bunds lower, Germany's fiscal position is becoming increasingly intertwined with that of the wider Eurozone.
• The EU currently plans to issue E55.5bln of bonds in H1-22 (of which E50bln will be part of the NGEU scheme).