EU REAL ESTATE: Derwent (DLNLN: A- Fitch) New Issue Final

• Total 12,000 0QM5 96.87/97.25 call spds, 10.5 ref 96.76 from 0750-0754ET

The lack of market moving comments from BoE’s Pill means that gilts have been driven more by flows than fundamentals over the last hour or so.

• Pill’s comments surrounding the recent BoE QT tweak are consistent with the idea of a more market aware round of official agencies (also factoring in the recent DMO remit decisions/tweaks), probably promoted by a more fragile fiscal state in the UK.
• This presents a risk to what already feels like crowded curve steepeners, all else equal (although fundamentals still seemingly lean towards further curve steepening).

• Given the sensitivity of the Swiss Franc to souring sentiment in recent weeks, the recovery in risk appetite following yesterday’s more constructive comments from Bessent and Trump has understandably weighed on CHF. This brings USDCHF to 0.8230, a significant 3% recovery from the Monday lows. Resistance is seen at the prior breakdown point of 0.8333, the 2023 low.
• Interestingly, Nomura now take a more dovish view on the SNB, forecasting "two additional 25bp rate cuts" at the next meetings, to a -0.25% policy rate following CHF appreciation, pressure from more ECB easing and "the economic hit from Trump’s tariffs".
• Danske meanwhile continue to forecast one further cut to 0% and remain bullish CHF longer term on the back of PPP considerations and "a global investment environment characterised by still weak global growth and elevated uncertainty". This leads to Danske updating their USDCHF forecasts to 0.80, 0.78 and 0.75 in 1m, 3m and 12m respectively.
• BofA state that if the SNB is of the view that recent CHF flows are more structural, then it may conclude that CHF strength has been a byproduct of derisking and not haven flow, meaning a lack of SNB intervention makes sense at this juncture.