While US 10y Treasuries have spanned a range of more than 11bp over the past three sessions, 10y Bund yields have remained remarkably sticky just above the 3.25% level, spanning a range of merely 3bp.
While certainly there has been a focus on the US side of things around the US Treasuries actions, it is also partly down to an absence of EUR specific data and events. The picking up of issuance and ongoing concerns around energy and geopolitics are factors to explain elevated yields if we had to lay a finger on it, but they have not really added volatility looking at the traded ranges.
There has been somewhat more movement on the front end, and if anything, this is where the end of the week could now see more volatility with the release of the flash PMIs, and the ECB’s consumer inflation expectations survey. The consensus points to marginal weakening in the PMIs, but not to the degree that would really challenge the current rate hike discount. Any downside surprise, though, might help the belly of the curve recover somewhat.
What we have seen since the summer is that data on balance has come in better despite the challenging backdrop. Alongside persistent energy concerns, this has helped put relatively more upward pressure on the belly of the curve. By now, the market has basically shed its hopes for any meaningful backtracking of the ECB tightening further down the road – the 1m OIS out 2 years is at the same level as 1m OIS out 1 year. Since around mid-March, the 2y forward had been consistently below the 1y forward apart from three very brief episodes.