GILTS: Curve Steeper, Yields A Little Higher On Cross-Market Factors
Jul-11 14:55
Gilt futures register fresh session lows but remain comfortably within the confines of this week’s pre-existing range.
- The rally in crude oil and hawkish repricing in CAD rates in lieu of the Canadian employment data provide the best explainers for the weakness.
- Futures as low as 91.58 before a bounce to ~91.70, with initial support at Tuesday’s low (91.42).
- Yields 0.5-3.5bp higher, curve steeper.
- 5- through 30-Year yields registered fresh July highs earlier this week, as the UK's fiscal fragility continued to apply pressure, before UK paper stabilised.
- Year-to-date highs in benchmark yields remain untouched.
- 2s10s and 5s30s hit fresh multi-week highs earlier this week.
- SONIA futures are flat to -3.5.
- BoE-dated OIS little changed, showing ~51.5bp of cuts through Dec.
- Looking ahead, inflation data is due on Wednesday, with labour market data due Thursday.
- Headline CPI is expected to print a touch above the BoE’s forecast owing to food prices, while the core reading is seen a touch below BoE expectations. Services CPI is expected to moderate further, albeit remaining at a relatively elevated +4.5% Y/Y (per the early BBG survey).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.005 | -21.2 |
Sep-25 | 3.947 | -27.0 |
Nov-25 | 3.783 | -43.4 |
Dec-25 | 3.704 | -51.3 |
Feb-26 | 3.577 | -64.0 |
Mar-26 | 3.548 | -66.9 |
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SWEDEN: 10-year SGBs Underperforming Bunds Following Soft Auction
Jun-11 14:43
The 10-year SGB/Bund spread has widened 2.5bps today to -21bps, and has now more than unwound the tightening seen following last Thursday’s ECB decision. This follows a somewhat weak 10-year auction earlier this morning.
- This morning’s auction was the first re-opening of the on-the-run 2.50% Oct-36 SGB 1067. The bid-to-cover ratio was 1.84x, and the cutoff price of 100.601 was below the pre-auction mid-price of 100.727. This follows a 1.82x bid-to-cover at last week’s launch.
- It seems the market is still adjusting to the National Debt Office’s (NDO) larger nominal bond auction sizes. Following the May 22 borrowing report, nominal SGB auctions were increased to SEK6bln from SEK5bln beforehand.
- The average bid-to-cover ratio for the previous on-the-run 10-year SGB (the 2.25% May-35 SGB 1066) was 2.63x.
- Speaking to the MNI Policy Team, the NDO’s Head of Debt Management did not express a concerns about the last week's 10-year SGB launch result. Meanwhile, he noted that Swedish debt market liquidity has improved and recent market turbulence and curve steepening is not triggering any shift in issuance strategy.
- Tomorrow's Swedish data calendar features the PES unemployment rate, while the final May inflation report is due on Friday. Broader focus remains on next week's Riksbank decision, where market pricing has moved heavily in favour of a 25bp cut in recent weeks.
US DATA: Vehicles, Medical Services, Housing Drag On Core; Airfares Neutral
Jun-11 14:42
The 0.11pp pullback in core CPI in May (0.13% M/M) versus April (0.24%) was due to diminished price pressure contributions from both core services and core goods inflation, as detailed in the table below.
- Core services inflation's retreat to 0.17% M/M (0.29% prior) shaved the contribution to core CPI by 0.09pp to 0.13pp in May vs April. Housing (-0.04pp), medical services (-0.03pp) were responsible for the majority of the relative pullback. Despite a decent drop in airfares (-2.7% M/M), that was basically the same as the prior (-2.8%) rate thus only meant a flat relative contribution to CPI vs April (-0.03pp drag in both months) - the same can be said for auto insurance's upward contribution (0.7% M/M after 0.6% meant a continued 0.02pp contribution).
- As noted, the surprise pullback in core goods prices (-0.04% after +0.06% prior) was driven largely by vehicles: both used and new subtracted around 0.2pp from core CPI, with all other goods contributing around 0.2pp.
OPTIONS: Expiries for Jun12 NY cut 1000ET (Source DTCC)
Jun-11 14:34
- EUR/USD: $1.1350(E1.9bln), $1.1395-00(E1.3bln), $1.1425-35(E1.4bln), $1.1440-50(E2.7bln), $1.1500(E2.4bln), $1.1525(E835mln)
- USD/JPY: Y143.00($1.3bln), Y143.85-00($1.0bln)
- GBP/USD: $1.3400-15(Gbp690mln)
- AUD/USD: $0.6475-85(A$1.1bln), $0.6500(A$532mln), $0.6520-30(A$992mln), $0.6600(A%643mln)
- USD/CAD: C$1.3750($833mln)
- USD/CNY: Cny7.1600($515mln), Cny7.2200($831mln)
