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BUNDS: Tuesday saw BofAML note that "following a month of increased trade
uncertainty, last week was dominated by central banks' reactions. We had dovish
reactions from the Fed, the BoE, as well as finally the ECB. After a
disappointing reaction to the June ECB meeting (breakevens lower, curve flatter
and EUR stronger), Mr Draghi tried to change the narrative at the ECB's
symposium in Sintra. He argued that the ECB would be forced into action not by
the materialization of negative contingencies, but by the absence of improvement
in the data flow. Specifically, the ECB has put all options on the table:
enhanced forward guidance, rate cuts and asset purchases. All three are
supportive of rates markets. Our economists now expect tweaks to forward
guidance in Jul followed by rate cuts in Sep. We reached and broke through our
-25bp Bund yield targets from a month ago. We now expect Bund yields to trade as
low as -40bp with flattening pressure on the curve. The search for yield,
increased likelihood of QE being priced, and extended forward guidance - we
believe - will outweigh any short-term mechanical curve steepening in response
to rate cuts."