Mounting speculation that a new deal for Greece could take shape in coming days has increased the appetite for risk and has pushed 10y Bund yields above 3% again.
The ‘risk on’ pattern may well continue in coming days. The remaining uncertainty, also about the long-term outlook for Greece, may limit the upside for yields of core countries, but on tactical grounds we prefer a short position in the Bund future for today.
Moreover, the upward correction in Bund yields may see some macro resistance today as the US manufacturing ISM seems to be attached with downside risks following the slump in the Chicago PMI yesterday. Treasuries look set to outperform in the near-term.
Today’s supply focus will be on France with a triple-feature auction of long-term bonds following Fitch’s stable rating outlook affirmation yesterday. The highlight will be the OAT 3.25%Oct21 as this will be the only new 10y benchmark this year.
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Interest Rate Strategy