Following the general Merkel-Sarkozy agreement on Friday, the Eurogroup delayed the decision about details on the new bailout package for Greece until early July. This shifts the focus back to the political developments in Greece, in particular the no-confidence vote in the parliament tomorrow. Friday’s cautious relief rally in euro area tier 2 spreads looks unlikely to continue today and may rather see a setback, not least because of Moody’s threat to downgrade Italy’s AA2 rating.
Apart from the Greece saga, there is little top-tier US data scheduled for this week, but softer readings in the top-tier German leading indicators later in the week may provide tailwind for Bunds from a fundamental point of view. The macro highlight will be the FOMC meeting on Wednesday where Bernanke will have the opportunity to explain his take on the recent disappointments in the second FOMC press conference.
All in all, the time for a clear-cut “risk on” sentiment many have been hoping for has not yet arrived and we expect Bunds to remain underpinned for now.
Commerzbank Corporates & Markets
Interest Rate Strategy