BONDS: Bunds Lower On Equity Bid, Gilts Holding Steady Ahead Of BoE
May-08 09:21
EGBs are lower on the day, with some positive reports on global trade matters (apparent advances in UK-U.S. trade talks and suggestions that the U.S. is set to relax export restrictions for chips) weighing, while providing support for equities
- Bund futures comfortably within yesterday’s range, last -21 at 131.30. Initial support and resistance located at 131.24 and 131.90, respectively.
- German yields 2.5-3.5bp higher, light steepening bias.
- EGB spreads to Bunds a touch tighter alongside the equity bid, BTP/Bunds now ~1bp above year-to-date closing lows, last ~106.5bp.
- SPGB supply passed smoothly enough.
- Gilts have stuck to a narrow range.
- Futures did tick above yesterday’s highs but have faded since, with more meaningful resistance at 93.93 unchallenged, last -6 at 93.37.
- Yields little changed, tightening vs. Bunds.
- 10s last flat at 4.46%, above uptrend support drawn off the Dec ’21 low (4.421% today)
- 2s10s and 5s30s remain shy of cycle highs, aided by the more activist approach to supply considerations from the DMO and BoE in recent weeks, skewing sales away from the long end.
- The BoE decision dominates the UK calendar today. A 25bp cut is both fully discounted and unanimously expected (97bp of easing priced through year-end).
- There are dovish risks to both the guidance and vote split, we eye a potential removal of the word “gradual” from the former and have flagged a chance of more than one vote for a 50bp cut (consensus looks for 8-1, with Dhingra voting for a 50bp move).
- We believe this skews the risks towards gilt curve steepening intraday and eye GBP 1y1y and SFIM5/M6 further forward on the curve (if dovish risks crystalise).
- Click for our full preview.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
NORGES BANK: Fairly Balanced Commentary From Governor Bache
Apr-08 09:19
Norges Bank Governor Bache's speech at the Finance Norway conference here. Overall, no explicit hints that the March MPR rate path is out of date following the US tariff announcements. Although Bache emphasises the importance of employment in delivering Norges Bank's mandate, attention to higher-than-expected inflation pressures remains clear.
- "As always, Norges Bank is prepared and is closely monitoring market developments".
- Re-iterates risk assessment from March monetary policy statement: "If the policy rate is lowered prematurely, we risk seeing a continued rapid rise in prices. At the same time, we do not want to restrict the economy more than needed to bring inflation back to target".
- "If prospects suggest that economic activity weakens amid a pickup in inflation, monetary policy trade-offs may be more difficult. We must then strike a balance between bringing inflation back to the 2 percent target and keeping employment as high as possible".
- "Our interpretation of Norges Bank’s mandate is that considerable weight shall be given to employment – also at times when inflation deviates significantly from the target. Keeping employment as high as possible is also important when faced with a global trade conflict".
- "But we must respond by tightening monetary policy if there are prospects that inflation will become high".
GILT AUCTION RESULTS: Strong gilt auction - futures move 25 ticks higher
Apr-08 09:09
- Decent premium to the market for the lowest accepted price (LAP) at 85.526 versus pre-market mid-price of 85.491. With a solid bid-to-cover (above 3x) and tail only 0.2bp.
- The 4.375% Jul-54 gilt has moved off of its lows on the back of that - and is now trading notably above the average auction price of 85.554 (85.712 at writing).
- 10s30s hasn't really moved post-auction, the move higher is being seen further down the curve.
- Gilt futures traded to 91.92 just ahead of the results - but are now 92.17 (25 ticks higher). Albeit this only puts us back to where we were around 7 minutes ahead of the bidding window closing.
GILT AUCTION RESULTS: 4.375% Jul-54 gilt
Apr-08 09:03
| 4.375% Jul-54 Gilt | Previous | |
| Amount | GBP2.25bln | GBP2.25bln |
| Avg yield | 5.357% | 5.104% |
| Bid-to-cover | 3.04x | 2.85x |
| Tail | 0.2bp | 0.2bp |
| Avg price | 85.554 | 88.951 |
| Low price | 85.526 | 88.919 |
| Pre-auction mid | 85.491 | 88.884 |
| Previous date | 04-Mar-25 |
