Halister News

(Bloomberg) -- Core euro-area bonds rally, curves flatten as risk-off mood sets in amid uncertainty around U.S. election; analysts see BTP/SPGB spread widening as overdone, RBS says buy BTPs after Italian referendum; 10y bund supply expected to be well received.

• Germany to sell 0% 08/2026 for EU3b at 11:30am CET
  • Given the modest size and the tight German repo market, look for a smooth auction that should be technically covered, Danske Bank says in client note
• 10y Spain/Italy spread is widest in 2 years, significantly richer than fundamentals, while Rajoy’s new minority govt gives way to more political instability, Commerzbank says in note
  • SPGB outperformance seems limited, recommend tactical 10y SPGB/BTP tightener for a pickup of currently around 45.5bps
• ING says in note that the 10y BTP/SPGB spread looks increasingly stretched, having widened to 45bps
• RBS says in note that large selling in BTP futures seems to have led recent weakness, with European holidays removing domestic investor support of past couple of sessions
  • Remain on sidelines for now, despite being at bund spread highs of 157bps; recommend going long BTPs after the referendum, regardless of outcome as BTPs can still rally on
• NOTE: Excel heatmap of euro-area govt bond curves and spreads here

YIELDS:

• Spain 10Y yield -4bps at 1.26%; Italy -4bps at 1.71%; Portugal +3bps at 3.32%
• German 10Y yield -4bps at 0.14%; Dec. bund futures +60 ticks at 162.44
• Bund-future technicals (roll-adjusted):
  • Resistance 162.54-56 (Oct. 27 mid-open/close price, Sept. 13 low), 162.81 (Oct. 17 low)
  • Support 162.00 (Daily Pivot), 161.84 (Nov. 1 close), 161.73 (200-DMA), 161.53 (Nov. 1 low). 161.37 (Oct. 28 low)

• ALSO IN FOCUS (ALL TIMES CET):
• Manufacturing PMI Releases
  • 9:15am: Spain, 9:45am: Italy (preliminary)
  • 9:50am: France; 9:55am Germany
  • 10:30am: U.K. Oct. Construction PMI est. 51.8
• 7pm: US FOMC rate decision
• For overnight news and what to watch, see EU FX/Rates daybook