EURIBOR OPTIONS: 0RJ5 98.00/98.12 Call Spread Bought Vs. 97.56 Puts

• Bowman (voter, hawk and a prime candidate for the next Vice Chair for Supervision role) said in prepared remarks that there is a troubling trend of inaction with bank supervision and that Fed rules addressing core bank issues are “ripe for review”.
• Her comments follow those earlier in the month that helped sparked a sizeable widening in long-dated US swap spreads having talked about amending the leverage ratio of the G-SIB surcharge.
• Her mon pol-focused comments meanwhile covered similar ground to those from Jan 31.
  • "Policy is now in a good place, allowing the Committee to be patient and pay closer attention to the inflation data as it evolves," Bowman said. "In my view, the current policy stance also provides the opportunity to review further indicators of economic activity and get further clarity on the administration's policies and their effects on the economy."
  • Bowman said the economy is strong and the job market is close to full employment. Core inflation, for its part, is "still somewhat elevated, but has appeared to resume its downward path, and my baseline expectation has been that it will moderate further this year."

The 10-year Gilt/Bund spread has tightened 2.5bps today to 204bps, with UK yields now 5bps below earlier session highs of 4.525%.

• The prospect of increased European defence spending has placed upward pressure on core FI yields through the day, though UK yields have seen a more pronounced reversal than EGB peers.
• Headlines from EU policymakers have hinted at a possible relaxation of fiscal rules to facilitate extra defence spending, alongside prospects of joint issuance. The UK would of course be unaffected by such decisions.
• UK PM Starmer nonetheless indicated that the UK will need to increase defence spending in earlier comments.
• Gilt futures are -35 ticks at 92.95, looking to close the opening gap lower at 93.10.  

• The Italian BTP helps some of the recovery in EGB futures, the contract look to close the opening gap up to 120.02, while better resistance will be seen at 120.47 initially.
• The 2.50% Yield level in Bund held perfectly so far today, after it printed 2.501% high earlier.
• Despite the US out for a Bank Holiday, Volumes in Europe are quite elevated when we consider that we didn't have any notable data release for the session.
• BTP/Bund spread is now 2.7bps tighter vs ~1.9bp earlier, the spread is making another attempt at that ~106.16bps level, where it found support in December, January and also this Month.