UK T-BILL AUCTION RESULTS: 1/3/6-month UKTBs

We have already noted that OAT/Bunds trades wider today, with the spread trading above 80bp since the benchmark OAT roll.

• Commerzbank write “with Macron already deciding on a new centrist prime minister, the political gridlock is not solved, but short-term uncertainty looks set to fade further, and we expect Fitch to maintain its AA-/negative rating on Friday. We therefore continue to see value in tactical OAT longs for now and target 70bp in the old/ 77bp in the new benchmark spread vs. Bunds and continue to suggest using periods of strength to reduce structural OAT exposure”.

• Broad stability for risk sentiment despite the Poland/Russia developments has allowed the likes of AUD and NZD to outperform on Wednesday, consolidating their solid recoveries from last week’s lows. For AUDUSD in particular, spot is consolidating above the 0.66 handle, continuing to threaten a move above the cycle highs at 0.6625, and a key resistance for the pair.
• Softer-than-expected inflation data in the US could provide the next impetus for the next leg higher in AUDUSD, strengthening the underlying bullish trend. The next targets for the move would be 0.6688 (Nov 07 high) and 0.6700, the 76.4% retracement of the Oct-Apr selloff.
• In contrast, lingering French political risks and geopolitical developments have relatively weighed on the Euro, allowing EURAUD to extend lower this morning. Despite being a slow burner, EURAUD has respected a prior breach of trendline support (drawn from the year’s lows, potentially bolstering short-term bearish conditions.
• The cross is approaching the July 31 lows and bear trigger at 1.7674, of which a break would place spot at near 3-month lows. Targets on the downside would include 1.7462 (Jun 10 low) and 1.7248 (May 14 low). ECB presents the nearest event risk for the cross, while September consumer inflation expectation data is due in Australia on Thursday.

Source: Bloomberg Finance L.P. / MNI

Weak demand on German primary also filtering through to the 15-year segment here, with very poor demand metrics of 1.28x bid-to-cover / 0.77x bid-to-issue for the 4.75% Jul-40 Bund. That bid-to-issue was the lowest on a German auction since October 2022.

• The low price achieved at the auction (121.22) was also below the secondary market mid price seen right before the cutoff (121.264).
• The line is seeing some weakness, with its price dropping to 121.188 at time of writing - but remaining above the intraday lows of 121.116 seen shortly after the cash open. Bund futures see some marginal weakness, if any.
• The 2.60% May-41 Bund auction fared better, meanwhile, with a bid-to-cover of 2.25x and a bid-to-offer of 1.75x, and the auction low price above the secondary market mid price.