Weighing the costs of (not) helping Greece? We expect the tensions and the elevated volatility in peripheral spreads to prevail until a new comprehensive deal for Greece is presented. After S&P’s negative outlook for Italy over the weekend, there seems to be a real risk of another widening vicious circle amid deteriorating liquidity in peripherals. We recommend risk-off positioning in the eurogovy space, for now.
The Bund Future broke above the 124.60/63 resistance on Friday and Bunds should now target the 3% area in 10y yields next, in the near-term also helped by further concerns regarding the global macro outlook.
The near-term supply outlook regarding EU and EFSF bailout-bonds becomes clearer. EFSF CEO Regling announced that the EFSF will be active in June, possibly letting the EU go first as soon as today.
Commerzbank Corporates & Markets
Interest Rate Strategy