EGBS: Bund Futures Strengthen Alongside European Equities; Spreads Tighten
Feb-26 10:38
Major EGB futures have strengthened this morning with no obvious catalyst. A renewed fall in natural gas futures (-4% today) will have helped limit retracements over the last 90 minutes, even in the presence of modest 15-year Bund supply.
- Bund futures are +24 ticks at 132.72, through the Feb 21 high of 132.60. Recent gains still appear corrective for now, but clearance of key near-term resistance at 132.97 (Feb 13 high) would signal a reversal. Support is seen at the Feb 19 low (131.96).
- The German curve has bull flattened, with 30-year yields down 2.5bps.
- Today ‘s 15-year Bund auction passed smoothly.
- European equity futures are also higher, facilitating a tightening of 10-year EGB spreads to Bunds. The BTP/Bund spread is 1bp narrower at 111.5bps, after mechanically widening on the back of a BBG benchmark BTP roll earlier this week.
- Regional focus remains on tomorrow’s data calendar. Which includes Spanish flash February inflation.
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GILTS: Supported By Broader Risk Off, Supply Eyed Later In The Week
Jan-27 10:34
Gilts are off session highs, with global inputs dominating thus far.
- Core global FI markets rallied as Chinese tech firm DeepSeek’s AI advances generated questions surrounding U.S. tech dominance, as well as promoting worry surrounding the high levels of planned and already deployed capex in microchips.
- Futures +48 at 92.39 last, compared to session highs of 99.60.
- Yields 2-5bp lower, 10s outperform.
- Bulls have been unable to force meaningful breaks of last week’s yield lows.
- Spread to Bunds 0.5bp wider at 206.5bp.
- BoE-dated OIS price 70bp of cuts through year-end after showing ~71.5bp at one point this morning. Last week’s dovish extreme of ~72.5bp over that horizon intact.
- We still look for cuts in February (market prices 22.5bp of cuts over that horizon) and May (~42bp of cumulative cuts showing through that meeting).
- SONIA futures flat to +6.5. SFIM6-U7 have breached last week’s highs.
- Supply provides the highlights of this week’s limited UK calendar.
- The DMO is looking to hold a tender of a sub-5-Year gilt on Thursday. We believe that the 0.125% Jan-26 gilt is the most likely candidate for issuance via that tender and pencil in a GBP1.0-2.0bln size for the transaction (greater colour surrounding our thoughts can be found in an earlier bullet).
US TSY OPTIONS: 10Yr Weekly Option
Jan-27 10:32
10yr Weekly Option, Expiry Friday:
- TY 110c, bought for '06 in 15k.
GERMAN T-BILL AUCTION RESULTS: 11-Month Bubills
Jan-27 10:32
| Type | 11-month bubill |
| Maturity | Dec 10, 2025 |
| Allotted | E1.951bln |
| Previous | E1.51075bln |
| Total sold | E2bln |
| Target | E2bln |
| Avg yield | 2.309% |
| Previous | 2.223% |
| Bid-to-cover | 3.69x |
| Previous | 2.6x |
| Bid-to-offer | 3.6x |
| Previous | 1.96x |
| Previous date | Dec 02, 2024 |
