BONDS: 10-year Gilt/Bund Spread Widens 5bps; Bundesrat Session In Progress
The 10-year Gilt/Bund spread has widened ~5bps this morning to 191.5bps, with UK paper lagging on the back of yesterday’s hawkish BOE vote split and this morning’s public sector finance data.
- 10-year Gilt yields are +2.9bps at 4.674%, just off earlier highs of 4.695%. Meanwhile, soft global equity sentiment has provided a tailwind to Bunds, with 10-year yields down 2.5bps to 2.756%.
- The UK curve has lightly bear steepened, with 2s10s and 5s30s up ~1bp.
- In futures, Bunds are +36 ticks at 128.54, with Gilts -12 at 91.92. Recent gains in both contracts are considered corrective, with bearish technical themes still intact.
- The February UK PSNB requirement was higher-than-expected at GBP10.7bln (vs 7.0bln cons, -13.3bln prior).
- The fiscal data reaffirms the fragile state of Government finances, but worth noting that the cut-off date for the OBR’s forecasts ahead of next week’s EFO was after last month’s public sector finance release, so today’s number won’t factor into the latest projections.
- Meanwhile, the Bundesrat session to vote on the reform to the constitutional debt brake and formation of an E500bln infrastructure fund has started. The states supportive of the reform should have enough votes to carry the two-thirds supermajority threshold, but a decision may not come till this afternoon.
- 10-year EGB spreads to Bunds are biased a little wider in light of the equity weakness. GGBs underperform, with spreads to Bunds +2bps at 81bps.
- Eurozone flash March consumer confidence is due at 1500GMT.
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BUNDS: /SWAPS: Defence Spending Risks Bearish For Long End Swap Spreads
{GE} BUNDS/SWAPS: German ASWs vs. 3-month Euribor are tighter but trade within 0.5bp of yesterday’s closing levels after debt issuance risks surrounding increased defence spending helped counter the (initially U.S. swap spread-driven) widening seen late last week.
- The Buxl ASW is the only spread which hasn’t fully retraced last week’s move.
- We have suggested that fundamentals point to continued tightening pressure in long end ASW spreads in the medium-term and increased defence spending would add further weight to this idea, as does the potential for debt brake reform.
- More broadly, Commerzbank play down the likelihood any fundamental regulatory shifts within EUR markets, noting note that “while ECB heavyweights are now actively calling for regulatory relief, we doubt that the Leverage Ratio is the binding constraint for € repo intermediation considering GC/specialness dynamics during the past 15 months.”
- As a result, Commerzbank reaffirm their view that “recoveries in (ultra-)long Bund spreads should be used to add to structural shorts.”
Fig. 1: German ASW Spreads (Vs. 3-Month Euribor)
Source: MNI - Market News/Bloomberg
BONDS: US and UK Roll views
These could pick up with Friday's PMIs in mind, and they will be concluded on the 27th for Gilt and 28th Feb for Treasuries.
JPM:
- WNA: Bullish.
- USA: Bullish.
- UXY: Mildly bearish.
- TYA: Mildly bearish.
- FVA: Bearish.
- TUA: Bearish.
DB:
- WNA: Bullish.
- USA: Bullish.
- UXY: Mildly bearish.
- TYA: Mildly bearish.
- FVA: Bearish.
- TUA: Bearish.
Soc Gen:
- WNA: Bearish
- USA: Neutral/Bearish.
- UXY: Neutral.
- TYA: Mildly Bearish.
- FVA: Bearish.
- TUA: Mildly Bearish.
UBS:
- UBS recommend selling Gilt Roll.
