GILTS: Bull Flattening After Data & EGB Spillover, 50bp BoE Cuts Show Thru Dec
Gilts hold the bulk of their early gains after the mostly softer-than-expected UK monthly economic activity data and some spillover from EGBs following latest Dutch pension reform news drove bullish flattening on the curve.
- Futures printed highest levels of the week at 93.10.
- The recent bullish cycle has extended. A break of session highs would expose Fibonacci resistance levels (93.26/47), which protect the May 8 high drawn off a continuation chart (93.59).
- Yields 3-5bp lower, curve flatter.
- 2s10s and 5s30s curves rangebound, after recent moves back above 60bp and 120bp, respectively.
- 10-Year gilt/Bund spread little changed on the day at 201.5bp, with the impact of the UK data offset by the readthrough from the Dutch pension news. Gilt bulls haven’t been able to force a close below 200bp in recent days.
- BoE-dated OIS prices 50bp of cuts through year-end vs. 48.5bp late yesterday.
- SFIZ5 and Z6 traded to the highest levels of the month. Z5 eyes May 12 highs (96.365), while Z6 eyes the May 9 top (96.545).
- Little of note on the UK calendar for the rest of the day, with ongoing assessment of the local data and macro inputs (U.S. PPI & weekly claims data) eyed.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.206 | -0.7 |
Aug-25 | 4.016 | -19.7 |
Sep-25 | 3.950 | -26.3 |
Nov-25 | 3.793 | -42.0 |
Dec-25 | 3.710 | -50.3 |
Feb-26 | 3.598 | -61.5 |
Mar-26 | 3.569 | -64.3 |
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EGBS: Bunds Consolidate Yesterday's Selloff; Focus On US CPI
Bund futures have consolidated yesterday’s sell-off. Today’s sovereign and corporate supply has helped limit rallies, with markets awaiting this afternoon’s US CPI report and any further tariff headline flow. While the US and China have agreed to a temporary tariff rollback, there remains a lack of progress on the EU/US trade front. This will be a key focus in the Eurozone until hard data for April starts filtering in later this month.
- Bunds are -31 ticks at 129.47, narrowing the gap to support at 129.28 (50.0% retracement of the Mar 11 - Apr 7 rally). For now, the latest move down in Bund futures is considered corrective.
- Initial resistance is the 50-day EMA at 130.57 and the 20-day EMA at 130.85.
- The German 10s30s curve is bear steeper (+1bp today), while 2s10s is slightly bear flatter owing to this morning’s E4.5bln 1.70% Jun-27 Schatz supply.
- Given the recent string of weak German auctions across the curve, today’s 2.16x bid-to-cover ratio for the Schatz (vs 1.69x prior) will come as somewhat of a relief.
- We have also seen 30-year supply from the Netherlands and 3/7/15+ year supply from Italy, while the EU is holding a 20-year syndication.
- 10-year EGB spreads to Bunds are biased slightly tighter.
- The German ZEW expectations component was much stronger-than-expected at 25.2 (vs 111.3 cons, -14.0 prior), with the DAX continuing its recovery from the April 9 lows in May.
- ECB’s Escriva and Makhlouf have spoken about the value of scenario analysis in comments this morning.
GERMAN AUCTION RESULTS: Solid Schatz Bid-to-cover Will Be A Relief
Given the recent string of weak German auctions across the curve, today’s 2.16x bid-to-cover ratio for the 1.70% Jun-27 Schatz (vs 1.69x prior) will likely come as somewhat of a relief. This was the first re-opening of this line after launching in April.
- It’s still worth noting that the low price of 99.510 was a touch below the 99.512 pre-auction mid-price. However, there has been limited reaction in the secondary price of the bond and Schatz futures since the results were published.
GILTS: Curve Twist Steepens, Soft Wages Data Supports Short End
Gilt futures are struggling to recover from lows, with Bunds experiencing some light pressure after a firmer-than-expected round of ZEW expectations data. Contract last -22 at 91.59 vs. lows of 91.51, breaking yesterday’s low.
- Next support located at the April 15 low (91.43).
- Yields 1.5bp lower to 3.0bp higher, curve steeper.
- 2s anchored by the dovish takeaways from the wage metrics in the monthly labour market report.
- SONIA futures +2.0 to -2.5, strip twist steepens.
- BoE-dated OIS showing ~49bp of cuts through year-end vs. ~46bp late yesterday, next 25bp cut fully discounted through the September MPC (~21bp priced through August).
- Meanwhile a relatively heavy morning for EGB & EU-bond supply applies pressure further out the curve.
- 2s10s and 5s30s curves both stick within multi-week ranges, failing to retest April cycle highs.
- The DMO’s consolation with market participants yielded no major surprises, with the DMO noting that it is planning to schedule one syndicated offering during Q2 2025-26 for the sale of a new medium conventional gilt with the transaction planned to take place in September 2025.
- BoE chief economist & hawkish dissenter Pill doesn’t offer much in the way of fresh monetary policy-related comments (pointing to his appearance scheduled for next week when it comes to more meaningful comments on that front), while long end I/L supply passed smoothly.
