EGBS: Dovish ECB Repricing Drags Short-end Yields Lower

A pullback in European equity futures has lent support to core EGBs this morning, though Friday’s high in Bund futures at 128.29 remains untested. Bunds are +12 ticks at 127.78 at typing, now off earlier session highs. The recovery from last Thursday’s lows in Bunds has allowed an oversold condition to unwind a little, though a bearish theme remains intact. Initial firm resistance to watch is 129.41, the Jan 14 low.               

• We have highlighted several drivers for today’s risk off action: Continued US growth worry, signs of tension within German fiscal negotiated and a possible reignition of tensions between Israel and Hamas.
• German yields are 1.5-2.5bps lower, with the 10-year point underperforming a little.
• German January industrial production was stronger than expected at 2.0% M/M (vs 1.5% cons), but had little net impact. The March Eurozone Sentix investor confidence survey also exceeded forecasts at -2.9 (vs -9.3 cons, -12.7 prior). Survey data was collected between March 6 - March 8, so includes the fallout from last week's German fiscal announcement.
• 10-year EGB spreads to Bunds trade quite resiliently despite the equity selloff. PGBs underperform (10-year spread to Bunds ~1.5bps wider at ~52.5bps) amid signs the Socialists will oppose the minority government’s no-confidence vote tomorrow.
• ECB’s Nagel is scheduled to speak at 1300GMT. 

RXJ5 126.50/125.50 put spread paper paid 18 on 10K.

The March Eurozone Sentix investor confidence survey was much stronger-than-expected at -2.9 (vs -9.3 cons, -12.7 prior). Survey data was collected between March 6 - March 8, so includes the fallout from last week's German fiscal announcement. From the press release:

"The announcement of debt-financed armaments programmes (EU and Germany) and infrastructure investments (Germany) has investors positively euphoric about further economic development. The sentix economic index for the euro area rises by 9.8 points to -2.9 points. At the same time, we are witnessing a historic crash in US eco-nomic indicators, the likes of which we have only seen during the 2008 financial crisis. The US expectations index falls for the third time in a row by 25.8 points to -17.8 points. How realistic and sustainable are both investor-designed scenarios?"

Little net reaction in Bund futures to the data as the fiscal signals were priced during last week's selloff. The Sentix is also not usually market moving in any case.