EGBS: 10-year Bund Yields Find Support at 2.60%
Jun-27 09:37
10-year Bund yields found solid support at 2.60%, a level which has capped topside throughout this month. 10-year yields are now little changed on the session at 2.57%, while the curve exhibits a light twist flattening bias.
- Schatz yields are up 1.5bps, taking cues from EUR STIRs after slightly higher-than-expected French inflation data this morning. Optimism surrounding US trade negotiations has also supported broader risk sentiment.
- Bund futures are -3 ticks at 130.46, up from today’s session low of 130.17 (also the June 16 low). Futures continue to trade below the June 13 high, but this still appears to be a correction from a technical standpoint.
- Italy sold 5/10-year BTPs this morning (and a floating rate bond), with the issuance digested smoothly. The 10-year BTP/Bund spread is 0.5bps wider at 89bps despite this morning’s 1% European equity future rally.
- Eurozone economic confidence was slightly weaker-than-expected at 94.0 (vs 94.8 cons and prior).
- Germany announced a 13.9% rise in the statutory minimum wage by 2027.
- Belgium's gross borrowing requirements have increased by E7.83bln to E52.52bln "on the back of higher net financing requirements (+ 8.0 billion euro) whose increase is, amongst others, due to rising defence spending."
- Broader macro focus turns to this afternoon’s US PCE report, while ECB’s Villeroy, Rehn and Cipollone are scheduled to speak.
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GERMAN AUCTION RESULTS: 1.00% May-38 Bund / 4.75% Jul-40 Bund
May-28 09:36
| 1.00% May-38 Bund | 4.75% Jul-40 Bund | |
| ISIN | DE0001102598 | DE0001135366 |
| Total sold | E1.5bln | E500mln |
| Allotted | E1.398bln | E490mln |
| Previous | E1.253bln | E801mln |
| Avg yield | 2.80% | 2.85% |
| Previous | 2.60% | 2.66% |
| Bid-to-offer | 2.20x | 5.68x |
| Previous | 2.36x | 1.26x |
| Bid-to-cover | 2.36x | 5.80x |
| Previous | 2.83x | 1.58x |
| Avg Price | 80.69 | 123.00 |
| Low Price | 80.68 | 122.94 |
| Pre-auction mid | 80.646 | 122.902 |
| Prev avg price | 82.29 | 128.44 |
| Prev low price | 82.27 | 128.37 |
| Prev mid-price | 82.235 | 128.352 |
| Previous date | 26-Feb-25 | 24-May-23 |
GILTS: Curve Bear Flattens, Supply Digested Smoothly
May-28 09:34
Gilts hold the bulk of their losses.
- Some concession was seen ahead of today’s green gilt supply and this morning’s syndication announcement seemed to weigh (a new long 13-year linker will be issued via syndication in the W/C 9 June. The timing is as we expected, but this maturity choice was not fully expected).
- Green supply ultimately saw solid demand, which allowed the space to stabilise.
- GU5 bases at 90.99.
- Fresh downward momentum would expose the 23 May low (90.46).
- Yields 2.5-4.0bp higher, curve bear flattens.
- 10-Year spread to Bunds ~2bp wider at ~215bp, on track for the highest close since mid-April. A cluster of April closing highs at 218.3/218.8bp presents the next upside areas of interest.
- BoE-dated OIS prices ~35bp of cuts through year-end vs. 36bp ahead of the gilt open.
- A text covering comments from BoE chief economist Pill will be released today (on the topic of “monetary policy: taking a walk on the supply side”) although don’t expect it to be market moving as the address was given on Thursday of last week.
- A reminder that Pill has already reaffirmed his position at the hawkish end of the BoE spectrum after lodging a dissenting vote earlier this month (to leave rates on hold).
- That should leave focus on macro cues.
EUROPEAN INFLATION: Services Help Belgian Core Inflation Ease In May
May-28 09:30
Belgian May flash HICP inflation was 2.8% Y/Y, down from 3.1% in April for the lowest reading since Januaary 2024. Annual CPI inflation eased to 2.01% (vs 2.55% prior), while CPI ex-energy and unprocessed foods decelerated to 2.59% Y/Y (vs 2.82% prior).
Looking at the major sub-components on a CPI basis:
- Services inflation eased to 3.65% Y/Y (vs 3.96% prior) despite an uptick in rent inflation to 3.60% (vs 3.51% prior). Airfares saw a -13.8% Y/Y reading, meaning the transport component pulled down headline inflation by 0.49pp.
- Food inflation was 2.04% Y/Y (vs 2.48% prior).
- Energy inflation was -1.10% Y/Y (vs +0.95% in April and 5.48% in March). On a monthly basis, there were declines in natural gas (-6.2%) and electricity (-4.0%), which pulled down respective annual rates. Fuel inflation was -9.9% Y/Y.
Figure 1: Belgium CPI Trends
