GILTS: Early Curve Flattening Holds, Uncertainty Lingers
Apr-10 09:32
Long end outperformance intact on the day, yields 1bp higher to 16bp lower, aggressive curve flattening unwinds a fair amount of yesterday’s steepening.
- 5s30s ~12bp flatter at ~124bp, after registering the highest close since ’17 on Wednesday. 2s10s ~11bp flatter at ~67bp after respecting the ’21 closing highs.
- Relative front end weakness has been driven by hawkish BoE repricing after U.S. President Trump delayed the imposition of reciprocal tariffs on most countries (China being the exception, given its retaliation).
- Meanwhile, long end gilts recover further from yesterday’s lows, after being pressured by what felt like deleveraging and ongoing worry surrounding the UK’s fiscal situation in the early part of Wednesday afternoon.
- Futures +84 at 91.54.
- Initial support and resistance defined at yesterday’s low (89.99) and the 20-day EMA (91.99), respectively. The longer run bearish technical setup remains in place.
- GBP STIRs comfortably off hawkish session extremes as geopolitical and tariff uncertainty persists, despite yesterday’s U.S. tariff delay.
- BoE-dated OIS 5-8bp more hawkish on the day.
- 22.5bp of cuts priced for May, 32bp showing through June and 76.5bp priced through year end (~80bp was priced through December at yesterday’s close).
- SONIA futures -7.5 to +7.5, strip flattens. October highs remained intact across most of the strip during the rally seen in recent sessions.
- BoE’s Breeden will appear at an MNI event from 14:00 London, speaking on the topic of ‘UK economic and Financial Stability prospects’.
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FOREX: FX OPTION EXPIRY
Mar-11 09:32
Of note:
USDCNY 4.06bn at 7.2000/7.2500 (wed).
USDJPY 1.18bn at 148.00 (thu).
- USDJPY: 147.00 (363mln).
- AUDUSD: 0.6300 (748mln), 0.6385 (2.47bn).
- NZDUSD: 0.5645 (652mln).
- USDCAD: 1.4400 (594mln), 1.4415 (359mln), 1.4470 (677mln).
GILT SYNDICATION: 1.875% Sep-49 I/L gilt
Mar-11 09:31
- Guidance unchanged: 0.125% Aug-48 linker (GB00BZ13DV40) + 1.0/1.5bps
- Size: GBP benchmark (MNI expects GBP4.0-4.5bln)
- Books in excess of GBP56bln (inc JLM interest of GBP4bln)
- Maturity: 22 September 2049
- ISIN: GB00BT7J0134
- Coupon: 1.875%, long first
- Settlement: 12 March 2025 (T+1)
- JLMs: BofA Securities, J.P. Morgan, Lloyds Bank Corporate Markets (B&D/DM), and UBS Investment Bank
- Timing: Books open, pricing later today (MNI expects books to close at 10:00GMT)
From market source
EGBS: Bunds Erase Yesterday's Gains Amid Renewed German Spending Prospects
Mar-11 09:31
Bund futures have erased yesterday’s gains after the German Green party signalled hopes for a defence spending deal by the end of this week. Futures are -73 ticks at 127.10, piercing last Friday’s 127.18 low. Initial firm support and the bear trigger is 126.64 (Mar 6 low), clearance of which would expose 126.49 (2.95% 10-year yield level) and 126.56, a Fibonacci projection.
- There has been little in the way of regional data this morning, while Bank of Finland Governor Rehn echoed the ECB’s intensely data-dependent approach ahead of the April decision.
- The German curve has bear steepened, with 2-year yields 1.5bps higher and 10-year yields up 5bps. Germans ASWs (vs 3-month Euribor) have tightened up to 1bp on the session.
- Books are open for today’s 10-year Dec-35 EU-bond syndication. The E9bln WNG size was within MNI’s E7-10bln range.
- Renewed German spending prospects has supported European equities, helping 10-year EGB spreads to Bunds tighten. The BTP/Bund spread is 2.5bps tighter today at 110.5bps. Note that Portugal’s minority government is expected to lose a confidence vote today, triggering new elections.
