EGBS: Bund Futures Follow Gilts Higher, Remain Below Initial Resistance
Bund futures have followed Gilts higher this morning, looking through early Spanish/French supply and an upward revision to the Eurozone June services PMI. Futures are +26 ticks at 130.21 at typing, but remain below clustered resistance at 130.50 (yesterday’s high) and 130.53 (50-day EMA). Global markets are focused on this afternoon’s US labour market report (alongside a swathe of other macro data).
- German yields are 1.5-3bps lower today, with the belly outperforming. A reminder that a BBG benchmark roll yesterday mechanically added ~4bps to the 10-year yield, which is currently at 2.631%.
- 10-year EGB spreads to Bunds are within 1bp of yesterday’s closing levels.
- Spanish and French supply was digested smoothly, with low prices in excess of pre-auction mids across lines.
- Following upward revisions in France and Germany, the Eurozone-wide June services PMI was revised to 50.5 (vs 50.0 flash, 49.7 prior). The composite PMI was 50.6 (vs 50.2 flash and prior), consistent with positive but weak growth.
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BOE: Bailey: Disagree with Mann on labour market, Feb judgment largely intact
"The key judgement there for me is really on the labour market. And I do take a slightly different view from Catherine [Mnnn] on this. I actually don't think we've seen particular surprises in inflation outturns relative to what we were expecting. The labour market actually, for me, has loosened somewhat. It's interesting. With the numbers for pay they're obviously at a level currently in the official data which is above anything, consistent with the targets. They're also actually out of line with past relationships. On the other hand, actually, were actually under the path we were expecting at the February report. But more particularly, I think the key question for me is, we've got.. got a view which is that we will see pay coming down this year. It was a central point in the survey that our Agents did at the start of the year. And at the moment, I would say, I think that path is intact, partly on what was partly, but partly, my judgement is based on what we're seeing in the sort of the more sort of immediate data that we're seeing. But it's actually substantially also based on a lot of trips around the country talking to firms and I my judgement is that we are seeing that and that's what firms are telling me they're seeing, but that's going to be a crucial judgement going forwards, which is like you know, gradual and careful remain my you know my sort of guiding line."
GILTS: Curve Flatter, Long End Auction Sees Good Demand
Gilts trade around recently registered session highs, with feedthrough from wider core global FI markets (well-received 10-Year JGB auction and slightly soft Eurozone HICP) providing some of the impetus.
- Solid demand (firmer cover than prev., tight tail, solid pricing) at the latest 4.00% Oct-63 gilt auction then added further support to the long end, with the curve already flattening ahead of supply.
- A downtick in equities also provides support for bonds.
- Gilt futures through a resistance cluster (91.87/89 & 92.00), posing a deeper threat to bears. Bulls now look to the May 8 low (92.40).
- Yields 4-7bp lower, curve flatter, but 2s10s and 5s30s remain within recent ranges.
- 10s tighten vs. Bunds, spread 4bp narrower to ~210bp. Some desks point to ongoing speculation re: UK fiscal tightening as supportive for gilts.
- GBP STIRs a little more dovish on the day as a result of the gilt move.
- SONIA futures flat to +4.0.
- BoE-dated OIS little changed to 3bp more dovish across the next 8 meetings, just under 40bp of cuts priced through year-end.
- A Treasury Select Committee hearing with BoE’s Bailey, Breeden, Dhingra & Mann is underway, pre-release comments from Dhingra & Breeden didn’t move markets.
- Little else of note on the UK calendar for the remainder of the day, which will leave focus on the TSC hearing and cross-market/macro inputs.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.216 | +0.4 |
Aug-25 | 4.085 | -12.6 |
Sep-25 | 4.041 | -17.1 |
Nov-25 | 3.897 | -31.4 |
Dec-25 | 3.816 | -39.5 |
Feb-26 | 3.704 | -50.7 |
Mar-26 | 3.686 | -52.5 |
BOE: Four MPC members testifying to TSC - hearing underway
- Dhingra and Mann both gave their rationale for their votes in May - there isn't anything here that is surprising that they haven't said before in recent appearances.
- Link to watch the 4 MPC members testifying re the MPR to the Treasury Select Committee available here (just started).
- And the link to the Dhingra's written evidence is here.
- The four members testifying today are Governor Bailey, Deputy Governor Breeden and external members Dhingra and Mann.
