We have been getting questions on..........>

EUROZONE: We have been getting questions on opening moves in EGBs, namely the

slide in bunds and rally in BTPs. This is most likely a continuation of

yesterday's play after Merkel and Macron presented a joined initiative for a

E500bn recovery plan.

- The proposals would allow the European Commission to raise funds in the market

and distribute to the worst affected states/sectors. It has been presented as a

loan that the EC will payback, but a direct transfer to member states. The funds

would be repaid over the long-term through the budget. 

- To the extent that the proposal reflects an improvement in coordination and

cohesion between Germany and France, which had previously been some distance a

part on the issue of how to fund fiscal support measures for COVID-19,

yesterday's announcement will underpin periphery-core spread compression.

- However, the initiative is unlikely to assuage concerns of the Netherlands and

Austria, among others that need to support the initiative and who have opposed

suggestions of debt mutualisation. Austria was yesterday quick to reiterate its

support for the use of loans.