EGBS: Curves Bear Flatten On US Court Ruling, But Policy Uncertainty Still High
May-29 09:31
The German curve has lightly bear flattened, with yields 1-2bps higher on the session. The Court of International Trade’s judgement blocking a significant portion of US tariffs has pushed European yields higher, as it reduces the tariff-implied downside growth/inflation risks facing the Eurozone economy.
- Hawkish impetus is limited by the fact the judgement does not cover sectoral tariffs (e.g. on autos and steel/aluminium). The court ruling should also not be considered set in stone. The US administration has already appealed the judgement, and there are avenues available for tariffs to be ratcheted higher in the meantime - uncertainty remains high.
- Bund futures gapped 23 ticks lower at open, and currently trade -18 ticks versus yesterday’s settlement at 130.65. The contract has moved away from session lows of 130.39. A bullish theme in Bund futures remains intact and the pullback from Tuesday’s lows is considered corrective.
- Liquidity has been thinned out by the Ascension Day public holiday in Germany and France.
- 10-year EGB spreads to Bunds are biased tighter, with the Court judgement supporting risk sentiment (even with European equity futures off overnight highs).
- Italy sold 5/10-year BTPs and a new CCTeu this morning, with the supply digested smoothly. Italian business and consumer confidence improved in May, but it is still too early to determine whether sentiment has entered a more pronounced uptrend.
- Global focus turns to this afternoon’s US GDP, PCE and jobless claims data.
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GILTS: Light Rally As Oil Softens
Apr-29 09:28
Gilt futures continue to oscillate within yesterday’s range, yields 1.5-2.5bp lower, light curve steepening. Moves aided by lower oil prices.
- Futures last ~93.20. Initial support and resistance located at 92.20/93.34, recent bullish technical theme remains intact.
- BoE-dated OIS little across contracts covering ’25 meetings.
- ~90bp of cuts still priced through year-end, a little less dovish than April’s extreme of ~97bp.
- The next 25bp cut is still fully discounted come the end of the May MPC.
- SONIA futures 0.5-2.0 higher, contracts remain below April highs.
- BoE Deputy Governor Ramsden will speak shortly (10:40 BST), although he seems unlikely to comment on monetary policy matters as he will give the keynote speech on payments innovation at the Innovate Finance Global Summit.
- That should leave macro cues at the fore, with continued focus on tariffs and the global trade backdrop. U.S. data, in the form of JOLTS and consumer confidence, is also eyed.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.205 | -25.4 |
Jun-25 | 4.070 | -39.0 |
Aug-25 | 3.864 | -59.6 |
Sep-25 | 3.750 | -70.9 |
Nov-25 | 3.606 | -85.3 |
Dec-25 | 3.555 | -90.4 |
FOREX: EURUSD Bullish Trend Conditions Intact
Apr-29 09:25
- Renewed dollar selling helped boost the Euro on Monday, culminating in EURUSD retaking the 1.1400 handle, albeit briefly. A lack of concrete details surrounding the US administration’s progress on trade deals has allowed the broader dollar weakening trend to resume, although the plethora of data this week and month-end could provide obstacles to short-term sentiment.
- Weaker-than-expected growth data in Spain was offset by firmer inflation readings, although Eurozone consumer inflation expectations rising to the highest levels in a year might tilt this morning’s data in a hawkish direction at the margin.
- Overall, breaks of multiple weekly trendline resistance levels bolster the dominant uptrend for the pair, while short-term moving average studies continue to underpin bullish sentiment. Last week’s move down allowed an overbought condition to unwind, and further strength would refocus attention on cycle highs at 1.1573. Key support is unchanged at the 20-day EMA, at 1.1236.
- Alongside several analysts, Standard Chartered are the latest to adjust their EURUSD forecasts, now forecasting the pair to end Q2 at 1.16 (vs 1.06 previously) and end-2025 at 1.16 (1.04). The bank has made similar adjustments to other G10 forecasts amid broad USD weakness. They have a moderate risk-on bias, so higher-beta currencies may outperform safe havens in the coming months.
ITALY AUCTION RESULTS: 5/10-year BTP and CCTeu
Apr-29 09:14
| 2.95% Jul-30 BTP | 3.60% Oct-35 BTP | 1.10% Apr-33 CCTeu | |
| ISIN | IT0005637399 | IT0005648149 | IT0005620460 |
| Amount | E3.5bln | E4bln | E2bln |
| Previous | E3bln | E1.5bln | |
| Avg yield | 2.74% | 3.62% | 3.27% |
| Previous | 3.05% | 4.11% | |
| Bid-to-cover | 1.52x | 1.58x | 1.66x |
| Previous | 1.58x | 1.74x | |
| Avg Price | 101.07 | 100.09 | 100.53 |
| Pre-auction mid | 101.058 | 100.449 | |
| Prev avg price | 99.64 | 100.25 | |
| Prev mid-price | 99.585 | 100.179 | |
| Previous date | 28-Mar-25 | 28-Mar-25 |
