EGB OPTIONS: Large Bund Risk Reversal

Gilts continue to take cross-market cues, initially rallying alongside EGBs and European equities, before fading back from highs.

• Futures breached yesterday’s high, peaking at 92.52, but failed to challenge Fibonacci resistance at 92.75. Contract fades back to 92.30 last.
• The overarching technical setup remains bearish, but the recent recovery poses a risk to that trend.
• Bears need to force a move through the Jan 16 low (90.68) to assert fresh pressure.
• Yields little changed to 1bp lower across the curve.

• The push higher in Govies continues to be OAT and BTP led, OAT has been bought in close to 10k in a 5 minutes window, and 5k for the BTP.
• There's hasn't been any obvious trigger, and the moves looks to more order flow related, but Some selling interest is emerging now at the top of the range in OAT and BTP, Bund also starts to fade of its intraday high.

Lagarde plays down the need for forward guidance, in line with GC colleagues over the last few weeks (e,g Nagel and de Guindos): “We have a method, we will apply the method, and we will take all the data that comes in. And data is going to be fascinating, as I said, the price of energy is going to be something that might have a real impact”.

• Earlier, when speaking about why the ECB has not cut by 50bps yet, Lagarde pointed the earlier start to the cutting cycle (e.g. compared to the Fed).