STIR: ECB Hike Pricing Round-Trips For The Week, With BoE Slightly Higher
Jan-20 17:47
After trading in a wide range this week (126-147bp), ECB terminal hike pricing finished where it began, with 142bp of tightening expected through July.
- The low was posted following a Bloomberg sources piece Tuesday suggesting ECB officials were eyeing a downshift from a 50bp Feb hike to a 25bp Mar hike. But pricing reversed higher in the coming days as a parade of ECB speakers (including Knot, Villeroy, Lagarde) pushed back, reiterating the December meeting guidance.
- Feb hike pricing continues to point to a 95% probability of a 50bp (vs 25bp) hike.
BoE 2023 hike pricing meanwhile ticked up this week by 4bp to 103bp (by the Aug MPC), in a slightly narrower weekly range than ECB terminal pricing moved (13bp, vs for 21bp)
- An above-expected CPI print offset other weak data (incl retail sales) and some commentary by BOE's Bailey (on inflation set to fall rapidly this year) that led to knee-jerk but not lasting dovish repricing.
- Indeed the CPI print helped nudge pricing a little more toward a 50bp hike in Feb (now 84% priced, vs 80% at last week's close).
Jul'23 Implied ECB Cumulative Hikes, bpSource: BBG
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BONDS: EGBs-GILTS CASH CLOSE: Bunds Reverse Early Gains
Dec-21 17:18
Gilts outperformed Bunds, with periphery EGB spreads narrowing Wednesday. Curves traded mixed, with the UK's bull flattening and German yields higher but mostly parallel.
- 10Y Bund yields had dipped more than 3bp by 1315GMT before reversing. No particular catalyst seen but strong US consumer confidence data helped continue the bearish afternoon trend. Yields closed just shy of the 2.316% session high.
- UK outperformance came despite unexpectedly high Nov gov't borrowing figures, which saw Gilts under pressure early.
- Periphery spreads narrowed in a mainly risk-on session.
- Italy's 2023 debt plan issued today (more here) foresees overall gross issuance of M-T/L-T securities between E310-320bln, vs E285bln in 2022
- Thursday kicks off with final UK GDP data. There is no supply and no central banks featured.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1bps at 2.527%, 5-Yr is up 1.1bps at 2.344%, 10-Yr is up 1bps at 2.314%, and 30-Yr is up 1.7bps at 2.204%.
- UK: The 2-Yr yield is down 1.5bps at 3.668%, 5-Yr is up 0.1bps at 3.58%, 10-Yr is down 2.5bps at 3.571%, and 30-Yr is down 3.8bps at 3.854%.
- Italian BTP spread down 4.9bps at 212.3bps / Spanish down 1.8bps at 108.3bps
OPTIONS: Larger FX Option Pipeline
Dec-21 17:07
- EUR/USD: Dec23 $1.0500(E1.4bln), $1.0800(E1.6bln)
- USD/JPY: Dec23 Y135.00($1.8bln)
- USD/CNY: Dec23 Cny6.8580($1.1bln), Cny7.0460($1.5bln)
US TSYS: Long End Continues To Pare Gains Ahead Of 20Y Auction
Dec-21 16:52
- The longer end is back cheaper on the day (20YY +1bp, 30YY +0.8bp) with just over an hour before the 20Y re-open and the front-end rally trimmed to 2bps.
- Mixed data (stronger consumer confidence, weaker housing sales) have on balance helped provide some of the impetus with 2s10s re-steepening to -55bps.
- TYH3 has pulled back to 113-17 off a pre-data high of 114-01+ but remains off the overnight low of 113-09+, providing initial support having pierced the 50-day EMA of 113-15.
