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EGB SUMMARY: - With minimal data flow, but a multitude of ECB speakers, EGB
markets keyed in on hawkish statements from ECB dove Villeroy this morning.
- Core EGBs had little respite after selling off this morning, and downside
momentum carried on through the early afternoon, with large Jun18 future block
sells at 1323BST. Bund future dropped to a low of 158.17, recovering slightly to
last trade 158.25, 60 ticks down.
- The Bund selloff meant the US 10-year yield advantage over Germany narrowed to
238.7bps from a post-German reunification high of 244.7bps set on May 9.
- Periphery yields also ticked up but spreads compressed as Italian political
fears eased from last week. Italian 10-yr BTP/Bund spread down 0.21bps, Spain
0.29bps tighter and Portugal outperforming with a 1.86bps fall.
- With Villeroy commenting that saying QE could end in Sep or Dec and a change
in rates could come quarters and not years after that, the Euribor strip sold
off, steepening overall, with blues off 4 ticks and whites flat.
- Italy to be the focus this evening with reports that the 5-Star/Liga policy
plan is not yet in place, and both parties meeting with President Mattarella.