EGB spreads to maintain resilience

Certain parts of the EUR rates market continue to gradually price in more ECB easing. Despite their recent rally, we are sticking with outright longs in 5y EONIA and France. In EGB spreads, we remain long 10y periphery and 5y5y fwd French spreads vs Germany. 

"We think our positive Spanish credit view can also be expressed in the 5y sector in outright terms given our long duration view at the front end of the EUR curve", says Barclays.

The past week has been characterised by the resilience of DM rates with 10y Treasuries rallying by 20bp and Bunds and Gilts following with a c.15bp rally. Fragile risky asset price action, together with weak US economic data (including payrolls), has been the main drivers of bond market resilience. 

On the data front in Europe, business confidence numbers came in strong, final PMIs were broadly in line with expectations, while September euro area headline HICP was revised lower to -0.1% (below consensus expectations of 0%) from the initial 0.1% reading.