Fixed Income: core bonds pare losses as BTPs beat a retreat

The pre-FOMC tone remains cautious overall, but Bunds have lead recovery gains in the mainstream, or rather been more responsive as usual to weakness in Italian debt. Indeed, the 10 year German benchmark almost erased all its losses at 159.46 vs Wednesday’s 159.50 Eurex close as its BTP counterpart collapsed to 121.84 (-73 ticks) from 122.52 at one stage. Meanwhile, Gilts only got as far as 121.36 (-13 ticks) in wake of the EC forecasts that highlighted Italian and EU disparities that extend to the impact of yield spread divergence, as US Treasuries tread carefully into the FOMC following quite a midweek bull-flattening move, with weekly initial claims forming the pre-Fed data focus.