BONDS: Cross-Market Inputs Dominate In Early London Trade

Bonds off early session highs as crude oil finds a base and participants realise that wider core global FI may see flow-based headwinds if Japanese pension funds adopt the repatriation idea floated by the country’s Finance Minister (the resulting rally in JGBs initially spilled over into wider core global FI markets overnight/in early London trade).

• Bund futures failed to break Wednesday’s high (125.77), leaving the bearish technical cycle intact. Initial support located at Wednesday’s low (125.04).
• German yields 0.5-1.5bp lower, curve leans flatter.
• 10s back below 3.10% after the benchmark roll factored into the break above 3. That level yesterday. May highs at ~3.20% remain untested.
• German 2s10s and 5s30s curve have failed to move meaningfully beyond respective June highs.
• EGB spreads vs. Bunds little changed to 1bp tighter.
• BTP supply was digested smoothly, with spreads vs. Bunds tightening following the auction (crude recovery also stalls in the same window).
• Gilt futures pierce the July 8 high (87.93), with the next upside target coming in at the 20-day EMA (88.59).
• UK yields ~2bp lower across the curve.
• 10s back below 4.90% after bears failed to challenge the 5.00% mark during the sell off seen in the earlier part of the week.
• UK 2s10s and 5s30s also back from highs seen earlier in the week, after the May highs capped the steepening.
• Cross-market inputs are set to dominate into the weekend, with little in the way of tier 1 risk events scheduled in Europe & the UK.