OAT: Block, Swap and Basis trades

The 10-year Gilt/Bund spread is little changed at 196bps, with yields drifting away from earlier highs. The 200bps handle, which was pierced on July 23, presents the main area of resistance for the spread.

• This morning’s headline flow has been relatively light, with markets still digesting the weekend trade deal between the US and the EU, as well as looking ahead to key data releases/events later this week.
• German yields are 0.5 to 1.5bps higher, with the belly lightly underperforming as a result of this morning’s E4.5bln Bobl supply (results were acceptable).
• The Gilt curve sees a more discernible bear steepening, with yields flat to 1bp higher. The front-end has been more supported by a strong 3-year Gilt auction. Note that in GBP STIRs, dovish call spread structures have been favoured this morning.
• Bund futures are -15 ticks at 129.58. A hammer candle formation on Jul 25 followed by a bullish engulfing candle yesterday signals a potential reversal of the recent downtrend. Initial resistance to watch is 129.95, the 20-day EMA.
• Initial support in Gilt futures was pierced earlier (session low of 91.16, just below the Jul 24 low at 91.18), but the contract has recovered to 91.40, -4 ticks today.
• UK consumer credit data for June was slightly stronger-than-expected, as was Spanish Q2 flash GDP. Focus remains on tomorrow’s Q2 GDP prints, the Eurozone July flash inflation round, and this week’s US events (Fed, Refunding, NFPs). 

• SFIX5 96.60/96.70cs, bought for 0.75 in 5k.
• SFIZ5 96.65/96.75cs, was bought earlier for 0.75 in 10k.

Call spread buyers has been the dominant Sonia Option structures this morning.