USTs Bid, Gilts Whipsaw, BTPs In Focus

Following yesterday's sharp sell-off, core sovereign bonds have recovered some of the lost ground this morning. There have been no material price catalysts this morning, with the reversal likely reflecting a natural correction following yesterday's heavy selling pressure.

• USTs have been bid with cash yields down 6-11bp and the belly of the curve outperforming. TYZ2 has pushed up to the top end of the morning's range (111-02 : 111-25+) and last traded at 111-22+.
• The gilt whipsaw remains centre stage in Europe, but BTPs are also in focus after the success of the far-right in this week's general election.
• BTPs have continued to push lower with yields up 5-12bp and the curve bear steepening. BTP underperformance suggests that for now any perceived sovereign debt risk is Italy-specific. Uncertainty around the incoming government's policy platform may be preventing a deeper sell-off.
• Bunds have firmed across the short-end and belly of the curve with yields down 2-4bp.
• It is a similar story for OATs. The curve has twist steepened with the 2s30s spread widening 3bp.
• The Euribor strip has steepened with greens/blues up 0.5-4.0 ticks. ESTR forwards are close to fully-pricing a 75bp hike in October, with the terminal rate now sitting at around 3% by June 2023.