Bullish bias in EUR rates is unlikely to disappear

The bullish bias in EUR rates is unlikely to disappear as the ECB has little choice but to remain accommodative, if not increase this accommodation at some point. Therefore, a more bullish message from the September ECB meeting is possible. 

"While there is a bullish bias in rates, levels are not found to be attractive to initiative a new outright position though. In EGBs, short-term tactical outperformance of Spain is seen versus Italy in the 10y sector with this week's Spanish auctions out of the way and Italy likely to issue a new 10y BTP at the 28 August month-end auction", says Barclays. 

Bund ASW at 40bp trades close to the wides of the summer currently. While setting up for the September swapped issuance pipeline can put tightening pressure on spreads, the current level is not very expensive fundamentally, and the bullish sentiment in the rates market can likely overshadow any expected near-term swapped issuance anticipation near term. 

"Therefore, a further outright rates rally is likely to be seen that squeezes Bund ASW more before considering any tactical shorts", added Barclays.