Uptick In Oil/Gas Futures Prompts Move Away From Highest Levels

Core/semi-core EGBs have turned lower on the day as geopolitical risk premia from ongoing Red Sea shipping disruptions support oil and gas prices.

• Brent crude futures are up over 3% today, with European gas futures over 8% higher.
• This has prompted a sharp move away from the day's highest levels for Bund and OAT futures. Bund futures are now down 66 ticks at 136.67 at typing. The Dec 15 low of 135.81 is the first support for Bund.
• A 2bp climb higher in the euro 5y5y inflation swap following the aforementioned oil/gas moves will have been a key source of pressure for EGBs.
• The German cash curve bear steepens, with 2s10s up 1.9bps today at -46.3bps.
• Peripheries remain tighter to Bunds, led by Greece and Italy. Recent ECB-speak has not touched on the latest change to PEPP reinvestments (re: tapering reinvestments from H2 2024 before fully ending them by end-2024), allowing spreads to remain narrower vs pre-ECB levels.
• Additionally, Bloomberg reported today that the Greek debt agency (PDMA) will look to sell up to E10bln of GGBs in 2024 following recent upgrades to investment grade status from Fitch and S&P. 2023 GGB issuance generated cash proceeds of E9.9mln, while the Greek 2024 funding plan is expected later this week.
• Unsurprisingly hawkish comments from ECB's Kazimir, alongside other speakers through today, have failed to meaningfully move the needle.