BUNDS: Best traded Volume of the early session, 2.60% holds

Gilt futures pierce yesterday’s low, with global long ends under some pressure following sub-par demand at the latest 40-Year JGB auction.

• GU5 bases at 91.05, before recovering to 91.15.
• Fresh downward momentum would expose the 23 May low (90.46).
• Yields ~3bp higher across the curve.
• 10-Year spread to Bunds ~1.5bp 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.
• The opening downtick in bonds applies some pressure to SONIA futures, which are now flat to -2.0.
• BoE-dated OIS prices ~35bp of cuts through year-end vs. 36bp ahead of the gilt open.
• On the supply front, the DMO will sell GBP2.75bln of the 0.875% Jul-33 green gilt this morning.
• The DMO has also announced that a new long 13-year linker (maturing 2038) will be via syndication in the W/C 9 June. The timing is as we expected, but this maturity choice was not fully expected.
• On net, these supply matters may be weighing a little on gilts.
• 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).

ECB-dated OIS continue to price 57bps of easing through year-end, little changed from yesterday’s close. Friday’s flash inflation data from Spain, Germany and Italy presents near-term event risk for EUR STIRs, particularly after the soft reading from France yesterday. However, ECB Chief Economist Lane re-iterated yesterday that medium term inflation will be dictated by where US/EU tariff rates end up, keeping broader focus on trade developments.

• A 25bp cut remains fully priced through June, with 32bps of cumulative easing priced through July.
• Euribor futures are biased slightly lower through the blues, tracking core FI markets after a soft long-end JGB auction overnight.
• The ECB’s April consumer expectation survey is due at 0900BST. Consensus sees 3-year expectations steady at 2.5%, with 1-year expectations expected to ease a touch to 2.8% (vs 2.9% prior).