GILTS: Early Rally Extends
Apr-30 09:37
Gilts extend on their early rally, after weaker oil prices (on the day) and a pullback from yesterday’s highs in e-minis provided background support for wider core global FI markets at the open.
- Futures have traded as high as 93.72, further establishing the recent bullish move. Our technical analyst’s next resistance level is located at 94.00.
- Yields 2.5-5.5bp lower, curve flattens.
- 10s are below the 4.460% yield support level we have identified in recent days, with the next downside level of note coming in at the trendline support drawn off the Dec 8 ’21 lows (4.411%).
- 2s10s and 5s30s continue to hold above 60bp & 120bp, respectively.
- Modest outperformance vs. Bunds allows the move below 200bp in the 10-Year yield spread to extend a little further, last 197.5bp, probing support at 197.4bp.
- The GBP4.5bn 4.375% Mar-28 gilt auction generated a solid cover ratio, tight tail and LAP that topped pre-auction mids.
- BoE MPC member Lombardelli will appear at 16:30 BST, although scope for meaningful monetary policy comments may be limited by the nature of her appearance, as she launches the Bank’s new economics teacher training partnership with Manchester University.
- ~94bp of BoE cuts priced through year-end vs. April extremes of ~97bp.
- Next 25bp cut fully discounted for next month.
- SONIA futures flat to +4.5, given the rally in gilts.
- Expect macro cues (tariff headlines, European national level inflation data and U.S. economic data) to set the tone for most of the day.
- Month-end index extension projections for gilts are modest at best.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
May-25 | 4.203 | -25.6 |
Jun-25 | 4.071 | -38.8 |
Aug-25 | 3.859 | -60.0 |
Sep-25 | 3.731 | -72.8 |
Nov-25 | 3.575 | -88.4 |
Dec-25 | 3.517 | -94.2 |
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AUD: Most Recent Analyst Views
Mar-31 09:33
- *ING note that AUD & NZD have been the big losers in the G10 in the second half of March as pressure from Chinese yuan proxy trades intensified. They don’t see much respite in sight given their relatively pessimistic view on the US trade policy to be rolled out in April. ING are still targeting a move to 0.62 in AUDUSD before they can think about calling for the bottom.
- *TD Securities maintain their bias to position for steeper curves and a weaker AUD with "Liberation Day" likely to overshadow the RBA meeting.
- *JP Morgan engages in EURAUD downside this week to tactically trade relative tariff exposure. Encouragingly, AUD screens more favourably on their FX quant TEAMS model with the currency buoyed by its forecast revision and activity surprise index scores keeping its ranking relatively firm.
- *Goldman Sachs believe markets continue to look more vulnerable to a downside surprise to the US outlook than an upside one. GS say the weaker momentum in the soft indicators and broadly lower sentiment raises the odds that the hard data begins to follow suit. The miss in personal spending adds to that case and increases the likelihood that markets view tariffs as most negative for the US. For that reason, GS continue to have a bias towards lower longer-end yields and equities—and they stick with their open trade recommendation to short AUD/JPY with a target of 90.5.
AUD: Weakness Prevailing as RBA Decision & Tariff Deadline Loom
Mar-31 09:31
- Analysts have been pointing out that the shifting market response to tariffs over the past two weeks has made it more difficult to position tactically, especially in currency markets. The Australian dollar has been one of the key underperformers over this period, remaining one of the best barometers for pessimism surrounding China and global risk sentiment.
- The renewed weakness in equity markets is weighing on AUD to start the week, and the close proximity to both the RBA decision and ‘liberation day’ should keep all eyes on AUD. Pricing for an AUDUSD straddle expiring on Friday (which includes NFP) incorporates a move of +/- 65 pips from current spot levels of 0.6260.
- Should AUD weakness prevail, this could place pressure on a key short-term support to watch at 0.6187, the Mar 4 low. Importantly, clearance of this level would reinstate a bearish technical theme for the pair.
- As has been well noted, lower US equities and lower US yields continue to bolster the bearish threat for AUDJPY, and the cross has recently respected downtrend resistance, drawn from the July 2024 high (shown below). Moving average studies remain in a bear mode position, and today’s sharp 1% move south renews the focus on the March double bottom at 91.86. Below here, the August global carry unwind lows ~90.15 remain a key medium-term target for the move.
BONDS: Yields Hold Lower As Equities Sell Off Ahead Of "Liberation Day"
Mar-31 09:27
Risk-off price action has been driven by tariff worry ahead of “Liberation Day” (Wednesday) and source reports pointing to the potential for deeper U.S. tariffs.
- A move away from lows in European equities & crude oil pushed bonds off session highs.
- Bund futures traded through key resistance at 129.41, peaking at 129.59, before fading back to 129.30 last. A fresh extension higher would target 130.00.
- Yields ~4bp lower across the German curve.
- Regional level German CPI data points to an inline national reading later today, while Italian CPI topped expectations.
- Eurozone HICP is tracking a little below consensus (+2.1-2.2% Y/Y vs. BBG median of +2.2%).
- EGB spreads to Bunds little changed to 2bp wider given the risk-off theme.
- There was no real initial reaction in OATs (both outright and in spread vs. Bunds) as RN leader Le Pen was found guilty in the RN embezzlement case. French political uncertainty and fiscal risks are set to remain evident in the near term, irrespective of who leads the RN through the next election cycle.
- Gilt futures have breached last week’s high and traded above 92.00.
- Initial Fibonacci resistance (92.17) protects trendline resistance drawn off the March 4 high (91.55).
- Yields 3-4bp lower across the UK curve.
- Dovish repricing in both the EUR (~85% odds of a cut showing for next month, 64bp cuts priced through Dec) & GBP (54bp of cuts showing through Dec) short ends given the prevailing risk-off theme.
- Comments from ECB’s Lagarde & Panetta failed to move markets.
