GILTS: Early Uptick Holds, Curve Flatter

Major EGB futures have rallied to fresh session highs over the last 60 minutes, led by semi-core/peripherals. The space largely brushed aside a Reuters sources article detailing German defence spending plans, with the piece lacking clarity on whether the touted E60bln of additional spending is for 2025 alone or split across the current parliamentary term.

• The limited reaction in German swap spreads suggests the story is consistent with pre-existing sell-side estimates of defence spending increases.
• Bund futures are +16 ticks at 131.07, with initial resistance seen at 131.24 (Apr 5 high). That shields key resistance and the bull trigger at 132.03 (Apr 7 high).
• OAT and BTP futures are up ~25 ticks each, with no obvious driver of outperformance versus Bunds. Today’s LT OAT auction was solid, but doesn’t seem to be enough to account for the outperformance.
• The German curve has bull flattened, with 30-year yields 3bps lower on the session. 10-year EGB spreads to Bunds are now up to 2bps tighter.
• Italy has held a buyback transaction this morning.
• Eurozone March retail sales were in line with consensus at -0.1% M/M, vs a one tenth downwardly revised 0.2% prior.
• Global macro focus turns to this evening's FOMC decision.

{GB} GILTS: Gilts have rallied alongside core global FI markets in recent trade, we continue to search for an overt driver.

• Although demand at the latest OAT & gilt auctions was deemed solid to strong, the results don’t seem firm enough to account for the rally.
• Meanwhile, oil futures have moved away from session highs, but the pullback has is only modest at this stage.
• Futures have registered fresh session highs of 93.15 in recent trade.
• Next resistance of note located at the May 2 high (93.93).
• Yields 0.5-4.0bp lower, flattening bias on the curve
• 10s 1bp tighter vs. Bunds, after holding between 195-200bp in closing terms over the last 3 sessions.
• Last week’s yield lows intact across the curve, 10s last 4.49%, ~8bp off their ’25 base.
• GBP STIRs hold close to opening levels, with ~95bp of cuts priced through year-end and the next 25bp cut fully discounted come the end of tomorrow’s decision.
• Click for our full preview of that event.
• Expect macro and cross-market cues to dominate for much of today’s session, although signs of thawing Sino-U.S. tensions, reports of advances in UK-U.S. trade talks and Chinese macro policy easing have had little lasting impact thus far.

• The greenback is more stable above yesterday's low, seeing support from yesterday's late reports that US-China trade talks will commence by the end of the week. This has tipped USD/JPY well off yesterday's lows and back above the Y143.00 handle. Nonetheless, the primary trend direction in USDJPY remains bearish and gains since Apr 22 appear corrective. Resistance at the 50-day EMA, at 146.33, remains intact.
• Meanwhile, GBP/USD has faded further off the Tuesday high, putting prices through the overnight low as well as 1.3329 - the 38.2% retracement of the downleg posted off the Apr28 high. The BoE decision due tomorrow should prove influential here, with the MPC seen opting for another 25bps rate cut.
• The Fed decision due later today is expected to be one of the least consequential of the year, with no change in policy expected as the FOMC look through recent market volatility and await hard economic data in the coming few months to make a decision on rates. Markets price scant chance of any move today, with the next 25bps step lower seen at the July meeting, once we get the first insight into economic behaviour post-tariffs via the NFP and CPI reports.
• Trump's schedule Wednesday is relatively light, however much focus may be paid to his participation in the swearing in ceremony for David Purdue as the US ambassador to China - often seen as a critic of China.