EUR GOVTS: EGBs fall on strong data but lack momentum ahead of FOMC


LONDON, July 25 (IFR) - With financial markets awaiting the FOMC rate decision
tomorrow it is perhaps no surprise that European government bond activity was
fairly subdued this morning. However, with a lack of market moving news in the
market, it was economic data in the form of the German July Ifo survey that
ultimately knocked the market out of its torpor.

Unless it is significantly diverse from expectations, economic data has tended
to have a minimal impact on the markets of late. Given how quiet it is, however,
the market rallied on weak Eurozone PMI data yesterday and fell on the stronger
than expected Ifo data today. July business climate came in at 116 (114.9 exp),
current conditions came in at 125.4 (123.8 exp) and expectations came in at
107.3 (106.5), and the result was that 10-yr Bund yield rose 2bp from 0.505% to
0.525% after opening 0.5bp higher first thing this morning. Otherwise there is
very little else going on in the market as investors await tomorrow's FOMC.
Peripherals are marginally tighter with 10-yr Italy/Germany 0.5bp tighter on
spread, 10-yr Spain/Germany 0.25bp tighter, and 10-yr Portugal 1bp tighter on
spread, reflecting the ongoing demand for carry trades over the quiet holiday
period. We still feel that peripheral spreads will continue to grind tighter to
core bonds.

Greece is back in the capital markets with a new 5-yr syndicated deal. Although
there is no confirmation on the size as yet, books stand at over €5.5bn, part
of which will comprise a switch out of the GGB4.75% 4/2019, but it is unlikely
to have any impact on the broader EGB market.


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