BUNDS: Recent Recovery Shows First Sign Of Running Out Of Steam [2/2]

SFIZ5 97.50 call, paper pays 1.5 in 6k (vs 96.00)

Upward pressure in long-end EGB yields have set the tone for short-end EUR rates today, amid heightened prospects for increased German fiscal (especially defence) spending. Euribor futures are -1.5 to -7.0 ticks through the blues, with ERZ5 fully unwinding last week’s rally.

• ECB implied rates are up 6.5bps on the session, with meeting-dated OIS now pricing 79bps of easing through year-end.
• Most of today’s hawkish repricing has been seen in the March-April meeting spread, which now prices 15bps of cuts (vs 17.5bps at Friday’s close).
• This morning’s flash Eurozone inflation print was second-order to the broader fiscal narrative, but still contained some interesting details. Although core inflation was a tenth higher than expected on a rounded basis at 2.6% Y/Y, services inflation surprised to the downside at 3.7%.
• We think the majority of the Governing Council will be encouraged by the services data, with easing labour cost pressures likely to continue driving disinflation during the course of this year.
• Tomorrow’s regional calendar includes the January unemployment rate, which is expected unchanged at 6.3%. However, we note that survey indicators have pointed to softer employment prospects ahead, which may start to be reflected in unemployment data.
• MNI’s ECB preview will be released tomorrow. 

• US TSY 26W AUCTION: NON-COMP BIDS $2.106 BLN FROM $68.000 BLN TOTAL