SPAIN AUCTION RESULTS: Bono / Obli Results

SX5E (20th Jun) 5100/4900ps, sold at 65.1 in 3k.

Citi are “bullish periphery and expect BTPs to eventually converge with OATs but would avoid BTPs in the near-term due to the risk of excessive volatility (linked to Trump tariffs).”

• Instead, they prefer “Bonos to express our structural longs – 30s vs OATs and 20s vs OLOs.”
• “The Bono-OLO spread has already started to move as it benefits from the anticipation of front-loading of OLO supply.”
• However, they caution that subsequent “performance might be slow given positioning, higher than expected Bono supply for 2025, concerns around the Spanish budget following Puigdemont withdrawing support for the Sanchez government and the spending needed for flood relief.”
• Still, their base case remains, as they look for “continued strong growth/low deficit in Spain, with a key near-term hurdle perhaps the supply pressure ahead.”

Largely familiar rhetoric from Villeroy in his comments to BBG TV:

• He has previously advocated for sequential cuts towards neutral, provided the inflation outlook remains benign. He re-iterates his view that neutral is "around 2%".
• Notably, he stops short of calling for cuts below neutral at this stage.
• Noting that ECB rates are not on a pre-set course, he doesn't exclude larger (than 25bp) cuts in the future. However, he does not see a need for them at this stage (in line with the broader GC consensus).
• Comments around the inflation outlook are optimistic.