GILTS: Curves Hold Steeper, Support Eyed In Futures
Gilt futures trade off lows, generally taking cues from U.S. Tsys in early Wednesday trade. Contract based at 91.08, last 91.20.
- Support at the Mar 28 low (91.03) was untested. That level protects the Mar 27 base & key support (90.55).
- Yields 3bp lower to 13bp higher.
- Twist steepening was initially promoted by dovish BoE repricing & the U.S. Tsy sell off.
- The latest round of USD asset sales has stalled, for now, but it has provided the central talking point today.
- 30-Year gilt yields hit the highest level seen since ’98, before the move away from session highs. The benchmark is still on track to record fresh cycle closing highs, last 5.48%. The next upside level of interest is located at the July 27 ’98 high (5.575%).
- Several curves hit fresh multi-year highs.
- The pricing side of this morning’s 5-Year gilt auction was weak, although the cover ratio was still respectable, printing just under 3.00x.
- Dovish BoE repricing across ’25 meetings has faded, contracts now 2bp more dovish to 1bp more hawkish vs. settlement. 28bp of cuts priced through May, 82bp through December.
- Twist steepening still apparent on the SONIA strip, futures +5.0 to -6.0, with the front end off highs and further out contracts off lows.
- The UK calendar is limited for the rest of the day, so expect cross-market & macro cues to continue to dominate.
- A reminder that BoE’s Breeden will speak at an MNI Connect event on Thursday, covering “UK economic and financial stability prospects."
- The latest BoE FPC meeting minutes showed some concern surrounding trade fragmentation and increased risks to financial markets, but didn’t meaningfully impact markets.
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EGBS: Supported By Pullback In Risk Appetite, PGBs Underperform
A pullback in European equity futures has lent support to core EGBs this morning, though Friday’s high in Bund futures at 128.29 remains untested. Bunds are +12 ticks at 127.78 at typing, now off earlier session highs. The recovery from last Thursday’s lows in Bunds has allowed an oversold condition to unwind a little, though a bearish theme remains intact. Initial firm resistance to watch is 129.41, the Jan 14 low.
- We have highlighted several drivers for today’s risk off action: Continued US growth worry, signs of tension within German fiscal negotiated and a possible reignition of tensions between Israel and Hamas.
- German yields are 1.5-2.5bps lower, with the 10-year point underperforming a little.
- German January industrial production was stronger than expected at 2.0% M/M (vs 1.5% cons), but had little net impact. The March Eurozone Sentix investor confidence survey also exceeded forecasts at -2.9 (vs -9.3 cons, -12.7 prior). Survey data was collected between March 6 - March 8, so includes the fallout from last week's German fiscal announcement.
- 10-year EGB spreads to Bunds trade quite resiliently despite the equity selloff. PGBs underperform (10-year spread to Bunds ~1.5bps wider at ~52.5bps) amid signs the Socialists will oppose the minority government’s no-confidence vote tomorrow.
- ECB’s Nagel is scheduled to speak at 1300GMT.
EGB OPTIONS: RXJ5 126.50/125.50 Put Spread Lifted
RXJ5 126.50/125.50 put spread paper paid 18 on 10K.
EUROZONE DATA: Stronger-than-expected Sentix Survey Incorporates Fiscal Ann
The March Eurozone Sentix investor confidence survey was much stronger-than-expected at -2.9 (vs -9.3 cons, -12.7 prior). Survey data was collected between March 6 - March 8, so includes the fallout from last week's German fiscal announcement. From the press release:
"The announcement of debt-financed armaments programmes (EU and Germany) and infrastructure investments (Germany) has investors positively euphoric about further economic development. The sentix economic index for the euro area rises by 9.8 points to -2.9 points. At the same time, we are witnessing a historic crash in US eco-nomic indicators, the likes of which we have only seen during the 2008 financial crisis. The US expectations index falls for the third time in a row by 25.8 points to -17.8 points. How realistic and sustainable are both investor-designed scenarios?"
Little net reaction in Bund futures to the data as the fiscal signals were priced during last week's selloff. The Sentix is also not usually market moving in any case.
