EGBS: Bund Futures Remain Sensitive To Mid-East Developments
Bund futures are -7 ticks at 130.86, with markets still sensitive to developments in the Middle East after the US attacked Iranian missile sites over the weekend. Israeli attacks on Tehran and the Fordow nuclear facility have continued today, but our commodities team notes that there are no signs that Iran is ready to carry out threats to block oil shipments.
- Bunds remain in consolidation mode and continue to trade below the Jun 13 high. For now, the latest move down appears to be a correction. Key short-term support to watch lies at 130.12, the Jun 5 low.
- German yields are 1-2bps higher, with the 5-year tenor underperforming.
- 10-year EGB spreads to Bunds are within 0.5bps of Friday’s closing levels (with the exception of GGBs, +1.5bps wider). Early narrowing has unwound with European equity futures now off session highs.
- The EU sold 5/10/25-year EU-bonds this morning, with Belgium also scheduled to sell OLOs at 1100BST. Slovenia announced a mandate for a 10-year benchmark.
- The Eurozone flash June services PMI ended up in line with consensus at 50.0 (vs 49.7 prior), somewhat surprising given the German reading was 1.6 points stronger-than-expected and France was only 0.3 points below consensus. This suggests that although the Eurozone ex-Germany and France continues to outperform the two largest economies, momentum in activity levels appears to be converging.
- ECB President Lagarde speaks at EU Parliament at 1400BST, with Nagel speaking on regulation at 1600BST.
- Elsewhere, there is some attention on the outcome of today’s French pension reform negotiations and tomorrow’s German budget/issuance plan.
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
