OIL: China Fuel Oil Imports Fell 29% in May

As we have already noted, the SONIA/Euribor December ’25 spread has registered the first close above 200bp since January, with the widening extending further today.

• The next upside level of note is located at the January 14 close (213.5bp).
• While an element of sensitivity to U.S. policy/market moves has factored into the widening, the BoE’s hawkish vote split at its May decision, subsequent hawkish commentary from BoE chief economist Pill and this morning’s UK CPI have provided domestic impulses on the SONIA side.
• Meanwhile, ECBspeak has remained fairly non-committal when it comes to the potential need to cut rates below neutral (base of the rough neutral range located at 1.75%), although some of the traditional hawkish voices within the ECB GC have softened their opposition to the idea of such a move.
• We have also flagged downside risks to the ECB’s June inflation projections, largely stemming from energy price developments, which adds another dovish input into the mix.
• While these risks appear to tilt the risks towards further widening, pricing of further BoE cuts is looking quite shallow at this stage, while ongoing macro volatility and beta to moves in U.S. rates add further layers of complication.

Fig. 1: SONIA/Euribor December ’25 Spread

Source: MNI - Market News/Bloomberg

The Swedish National Debt Office (NDO) will release its May borrowing report tomorrow at 0830BST. General expectations are for the borrowing requirement to increase in both 2025 and 2026, reflecting (i) the budget balance forecast error since the November ’24 report, (ii) the expansionary measures presented in the government’s Spring budget bill and (iii) expectations for increased defence spending in the coming years. 

• The NDO will release two (rather than three) borrowing reports per year from 2025, with the second report for this year due in November.
• The cumulative budget balance since the November 2024 report has been SEK20bln below NDO projections. Meanwhile, the Spring budget bill included SEK11.5bln of expansionary measures (0.2% GDP). The Government also aims to increase defence spending to 3.5% GDP By 2030 (from 2.5% currently).
• In the November report, the NDO projected nominal bond issuance at SEK100bln in both 2025 and 2026. The three estimates we have seen from Scandinavian banks look for 2025 nominal issuance between SEK100-120bln and 2026 issuance between SEK120-140bln.
• This will likely result in increased nominal bond auction sizes going forward.
• From a markets perspective, Danske Bank note that “we do expect to see cheaper SGBs following the SNDO report, and we like our recommendation to be long 10y NGB vs SGBs. While being short SGB1066 ASW is also an attractive trade, we like our long-held SGB1053 (Mar-39) vs SGB1056 (Jun-32) ASW steepener box as a somewhat more defensive play".

Bearish momentum remains intact with Bunds through previously identified support at 129.71, while 30-Year U.S. Tsy yields near Monday’s high (5.0353%), last 5.0258%. No clear headline driver for the latest leg of weakness.