GILTS: Early Outperformance Vs. Bunds Extends
May-02 09:34
{GB} GILTS: Gilts have extended on the rally that we flagged at the open.
- While a bid in wider core global FI has developed in the time since, with e-minis and oil ticking away from Asia-Pac highs, the earlier bid in gilts bucked the broader trend and UK paper continues to outperform.
- There hasn’t been an overt driver for the move. ReformUK’s local and byelection results shouldn’t be much of a needle mover at this stage.
- Futures as high as 93.93 as the recent bullish move extends. Yesterday’s high (93.86). Bulls now eye 94.00, followed by the April 7 high and key resistance level (94.50).
- Yields 4-6bp lower, 10s outperform.
- Uptrend support in 10s, drawn off the Dec ‘21 lows (4.420%), has been pierced, exposing the year-to-date low
- Spread vs. Bunds in to ~195bp, set for the lowest close since April 4.
- GBP STIRs adjust to the rally in gilts after a modestly hawkish start on increased optimism surrounding a Sino-U.S. trade discussion was reversed.
- BoE-dated OIS shows 98bp of cuts through December vs. ~95bp at the open, a reminder that over 100bp of cuts were priced in over that horizon yesterday. ’25 meeting contracts are 0.5-2.0bp more dovish on the day.
- SONIA futures flat to +3.5.
- Little of note on the UK calendar today, which will leave focus on tariff headlines and macro data (U.S. NFP & Eurozone CPI provide the focal points).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.196 | -26.3 |
Jun-25 | 4.057 | -40.2 |
Aug-25 | 3.842 | -61.7 |
Sep-25 | 3.695 | -76.4 |
Nov-25 | 3.536 | -92.3 |
Dec-25 | 3.484 | -97.5 |
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GERMAN AUCTION RESULTS: 2.50% Feb-35 Bund
Apr-02 09:33
| 2.50% Feb-35 Bund | Previous | |
| ISIN | DE000BU2Z049 | |
| Total sold | E4.5bln | E4.5bln |
| Allottedd | E3.42bln | E3.455bln |
| Avg yield | 2.68% | 2.92% |
| Bid-to-offer | 1.64x | 1.62x |
| Bid-to-cover | 2.16x | 2.12x |
| Avg Price | 98.45 | 96.43 |
| Low Price | 98.43 | 96.42 |
| Pre-auction mid | 98.434 | 96.401 |
| Previous date | 12-Mar-25 |
Additionally, DFA has announced the following:
"On 8 April 2025, the outstanding volume of the 2.50 % Federal bond of 2025 (2035), due on 15 February 2035, ISIN DE000BU2Z049, will be increased by € 1 billion with effect from 10 April 2025. This increase will be added to the Federal Government's own holdings. The new outstanding volume of the conventional 2.50 % Federal bond of 2025 (2035) is expected to be € 24 billion."
BONDS: Bunds Outperform Ahead Of U.S. Tariff Announcements
Apr-02 09:33
Bearish moves remain contained as participants await the “Liberation Day” tariff announcements out of the U.S. (scheduled for 16:00 ET/21:00 BST), providing some background demand for core global FI.
- EGBs outperform gilts, given perceptions surrounding higher EU sensitivity to tariffs and assumptions surrounding the prospect for deeper ECB easing if GDP growth is hit hard.
- Still, Bunds have failed to retest recent session highs and yields remain above the March 5 low (2.654%), which represents the base of the range seen since the “whatever it takes” fiscal stance was adopted.
- Yields flat to 2bp lower on the day, curve steepens.
- EGB spreads to Bunds biased wider, aided by a downtick in European equities ahead of the U.S. tariff announcement. Bund supply due shortly.
- ECB commentary fails to add to the debate, generally reaffirming well-documented themes. ~62bp of cuts priced through year-end, with ~19bp priced for this month’s meeting.
- Gilts underperform vs. Bunds (10-Year spread ~2bp wider) and with Tsys off yesterday’s highs.
- Futures within yesterday’s range and downtrend line resistance (92.42 today) remains untested.
- Yields ~2bp higher across the curve.
- 2s a handful of bp above March lows.
- 52bp of BoE cuts priced through year-end.
- ECBspeak from Schnabel, Lane, Holzmann and Escriva scheduled for today. Note that Lane will moderate a panel at the Bank’s AI conference, so don’t expect too much in the way of direct monetary policy comments from him.
- Little of note on the European & UK data calendars, which will leave focus on U.S. tariff decisions and data for much of the session.
FOREX: Markets Poised for Liberation Day
Apr-02 09:32
- AUD and NZD are outperforming in early trade, with AUD/USD looking to test the 100-dma resistance at 0.6314 on any further strength. The USD is generally subdued, with markets clearly lacking directional conviction headed into today's tariff announcement.
- Trump's Rose Garden appearance at the US cash equity close is the sole focus Wednesday, with markets looking for clarity on 'Liberation Day' and what this means for the global trade order. Options remaining on the table are speculated to be a blanket tariff of ~20% on most US imports, a country-by-country approach or a tiered system. Regardless of the approach the White House go for, tariffs are expected to come into effect immediately, leaving markets fraught with risk through the session.
- Haven currencies are moderately softer - but the likes of CHF and JPY are still well ahead of support, meaning today's step lower in JPY, CHF may not be a direct indicator of risk-on. AUD/CHF has rallied Wednesday, but prices are meeting resistance at the formation of a downtrendline drawn off the early March highs.
- US final durable goods orders, ADP Employment Change and appearances from ECB's Schnabel, Holzmann, Lane & Lagarde are due.
