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Spreads Still Tighter, But Euro Equity Weakness Factoring In

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EurozoneStoryFixed Income BulletsMarkets

The latest extension lower in European equity futures sees 10-year EGB spreads to Bunds unwind their US PMI-inspired tightening. Spreads remain tighter on the session, though.

  • BTPs slightly underperform peripheral/semi-core peers (the BTP/Bund spread is 0.5bps tighter at 109bps), with Italian paper’s higher beta to European equities and ECB cut pricing likely factoring in. Estoxx 50 futures have drifted lower since mid-morning, while ECB-dated OIS price 88bps of easing through year-end (vs 95bps at yesterday's close).
  • The 10-year Obli/Bund spread is 1.5bps tighter today at ~61.5bps, just above Wednesday’s post-syndication lows. A reminder that the 10-year 3.15% Apr-35 Obli launch saw record order books in excess of E139bln.
  • The week ahead sees E21.3bln of a formerly 5-year Spanish Bono redeeming. However, this may not generate significant reinvestment tailwinds, with the ECB likely owning a large amount of this bond.
  • The OAT/Bund spread is 1.5bps tighter at ~73.5bps. Expect French political headline flow to pick up a little more next week, with the Government hoping to pass a budget by the end of this month.
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The latest extension lower in European equity futures sees 10-year EGB spreads to Bunds unwind their US PMI-inspired tightening. Spreads remain tighter on the session, though.

  • BTPs slightly underperform peripheral/semi-core peers (the BTP/Bund spread is 0.5bps tighter at 109bps), with Italian paper’s higher beta to European equities and ECB cut pricing likely factoring in. Estoxx 50 futures have drifted lower since mid-morning, while ECB-dated OIS price 88bps of easing through year-end (vs 95bps at yesterday's close).
  • The 10-year Obli/Bund spread is 1.5bps tighter today at ~61.5bps, just above Wednesday’s post-syndication lows. A reminder that the 10-year 3.15% Apr-35 Obli launch saw record order books in excess of E139bln.
  • The week ahead sees E21.3bln of a formerly 5-year Spanish Bono redeeming. However, this may not generate significant reinvestment tailwinds, with the ECB likely owning a large amount of this bond.
  • The OAT/Bund spread is 1.5bps tighter at ~73.5bps. Expect French political headline flow to pick up a little more next week, with the Government hoping to pass a budget by the end of this month.