EGBS: Bund Futures Pressured By 10-year Supply and UST Spillover
Jul-02 09:37
The combination of this morning’s 10-year supply alongside negative spillovers from US Treasuries has weighed on Bund futures, now -35 ticks at 130.14 (albeit off lows of 130.08). Futures remain above Monday’s low (130.00) for now, but a bearish threat is present and a clear move below prior support at 130.12 would highlight this threat, undermine the recent bullish theme, and signal scope for an extension lower.
- Germany sold E6bln of the new 10-year 2.60% Aug-35 Bund this morning. Demand metrics were a bit softer than the last auction of the previous on-the-run line, but the reaction in Bund futures was contained.
- The German curve has bear steepened (note: 10-year yields are skewed higher owing to a BBG benchmark roll), with Schatz yields up 1bp and 30-year Bund yields up 3.5bps.
- 10-year EGB spreads to Bunds are biased a little wider, but remain within 1bp of yesterday’s closing levels. French PM Bayrou survived a no-confidence vote last night – as expected.
- This morning’s Eurozone data hasn’t been market moving. The Italian unemployment rate surprisingly jumped to 6.5% (vs an upwardly revised 6.1% prior), which also pushed the Eurozone-wide reading a tenth above consensus to 6.3%.
- Further commentary from the ECB’s Sintra forum will be eyed, particularly in relation to recent exchange rate moves. The MNI Policy Team released an interview with Bank of Portugal Governor Centeno this morning.
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FOREX: Downside in Focus for DXY, USD/JPY Support in Sight
Jun-02 09:34
- The greenback is slipping against all others early Monday, turning focus back to the recent lows and bear trigger for the USD Index at 97.921. A close at today's lows would mark a resumption of the S/T downcycle, narrowing the gap with the bear trigger to just 0.75%. The formation of a bearish engulfing daily candle on Thursday last week adds to the S/T downside focus.
- Trump's doubling of aluminum & steel tariffs on Friday have countered any building hopes that tariffs could be fading as a primary policy tool, even as the likes of the EU are granted reprieves and delays to the onset of major levies. Risk sentiment has been dented as a result, as markets assess the latest geopolitical concerns regarding the Russia/Ukraine conflict and tariff related developments between the US and China.
- The prevailing trend of greenback weakness has resumed, prompting USDJPY to extend its pullback from last Thursday’s 146.28 high. This leaves spot trading below 143.00 once more and a continuation lower would expose 142.12, the May 27 low. Clearance of this level would resume the bear leg and signal scope for a move towards a key medium-term pivot around the 140.00 mark.
- The Yen is notably outperforming the Swiss Franc, prompting a 0.35% move lower for CHFJPY. While this cross remains in the middle of the May range, spot continues to find good resistance around the 176.00 handle. Further weakness would raise attention on the key 50-day EMA support, intersecting at 173.35, an average we have not closed below since mid-March.
- Focus for the remainder of the session rests on May ISM Manufacturing data, with the employment subcomponent in particular focus ahead of Friday's nonfarm payrolls print. Markets are on watch to see whether today's print mirrors that of the MNI Chicago PMI on Friday, which came in well below expectations. Speakers due today include Fed's Logan, Goolsbee & Powell as well as BoE's Greene & Mann.
GILTS: Sell Off Holds, Curve Steeper
Jun-02 09:34
Gilts are just off lows after the latest round of tariff-inspired worry (Trump’s latest metal tariff increase threats) and higher oil prices (in light of the OPEC+ meeting) seem to increase the market-based risks of persistent inflation over at least the medium-term.
- Futures traded as low as 91.16 before a shallow recovery to ~91.25 last.
- First support of note not seen until the May 29 low (90.59).
- The bearish technical cycle in the contract remains in play, with our technical analyst still deeming the recent recovery to be corrective.
- Initial resistance located at 91.87.
- Yields are 2.5-6.0bp higher.
- 2s10s and 5s30s still ~15bp off respective cycle closing highs.
- 10s vs. Bunds 1bp tighter at 214bp. April closing highs at 218.8bp intact.
- Hawkish adjustments seen in GBP STIRs as core global FI softens.
- SONIA futures last little changed to -3.0, erasing Friday’s post-settlement uptick. SFIZ5 6.0bp off May’s lows.
- BoE-dated OIS shows ~35bp of cuts through year-end vs. ~37bp late Friday.
- Spill over from the latest U.S. ISM manufacturing release is eyed later today.
- Comments from BoE’s Greene (18:00 London) & Mann (text released at 15:00 London) are also due.
- Mann’s comments will come under particular scrutiny, with her only post-May MPC appearance (where she provided hawkish dissent, voting for unchanged rates) providing little in the way of details.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.214 | +0.3 |
Aug-25 | 4.105 | -10.5 |
Sep-25 | 4.064 | -14.7 |
Nov-25 | 3.929 | -28.2 |
Dec-25 | 3.858 | -35.3 |
Feb-26 | 3.754 | -45.7 |
Mar-26 | 3.742 | -46.9 |
GERMAN T-BILL AUCTION RESULTS: 6-Month Bubill
Jun-02 09:33
| Type | 6-month Bubill |
| Maturity | Dec 10, 2025 |
| Allotted | E1.6964bln |
| Previous | E1.47bln |
| Total sold | E2bln |
| Target | E2bln |
| Avg yield | 1.854% |
| Previous | 1.865% |
| Bid-to-cover | 3.83x |
| Previous | 2.6x |
| Bid-to-offer | 3.25x |
| Previous | 1.91x |
| Previous date | May 05, 2025 |
