The hardened positions between the ECB and the German government about the private sector involvement in a rescue deal for Greece favours a risk off bias which supports Bunds, even though the ECB will continue to hike rates next month.
Beware of more chatter from both the Frankfurt and Berlin corners today: several ECB Board members will speak at the ECB Watchers Conference in Frankfurt while in Berlin, the parliament’s lower house will debate about the euro rescue scheme and aid package for Greece. Headlines are guaranteed.
In the absence of macro data and supply we prefer a neutral tactical position in Bunds for today in these headline driven markets. We also reiterate our view for sidelined Tier 2 spread exposure ahead of next week’s record eurogovy supply.
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