Bank of America Global Research discusses the EUR curve outlook.
Depending on your sector of choice, the EUR curve has either reached its flattest levels since the crisis or since pre-2015 Bund tantrum extremes. While the moves are superficially akin to last summer, a number of key differences suggest additional flattening risks cannot be ruled out; we are only at Stage 3 of 5 in the flattening move," BofA notes.
"Stage 1 was driven by 50y, arguably on the back of expected Dutch pension discounting rule changes that increase the sensitivity of Dutch PFs to rates beyond the 30y. Stage 2 looks like insurance receiving, but with the regulatory push far in the offing, this may have been anticipatory flow, rather than actual hedging. In Stage 3, negative gamma on the other hand does seem to have been a driver, more so than in 2019. However, we may have yet to see broad-based capitulation of underweight duration positions in core EUR, though arguably price action Monday/Tuesday suggests this may be starting,"BofA adds.