BONDS: EGB & Gilt Yields A Little Higher, Support In Futures Intact
Jul-18 09:40
Slightly firmer oil prices and equities weigh on EGBs & gilts, with little in the way of market moving headline/data flow to note
- Bund futures -28 at 129.55. Volume below recent averages.
- A bear cycle in Bunds remains intact, with initial support still Monday’s low at 129.08. Clearance of this level would quickly expose the bear trigger at 128.97 (May 14 low).
- German yields 2-3bps higher on the session. Bund yields remain in the 2.40-2.75% range in place since late March.
- 10-year EGB spreads to Bunds biased slightly tighter but within 0.5bp of closing levels.
- Yesterday’s low in gilt futures (91.14) held at the open. A break would expose Fibonacci support (90.97)
- UK yields flat to 1-3bp higher, multi-week ranges intact through 30s, 50s to fresh cycle highs.
- 2s10s steadies around 75bp after failure to meaningfully break above 80bp earlier in the week, while 5s30s continues to consolidate around 140bp.
- Fundamental factors point to the potential for ongoing steepening, although seemingly crowded positioning and a more activist policymaker approach to limiting spikes in long end yields poses risks to that idea.
- BoE pricing steady around ~46bp of cuts through year-end (21.5bp for Aug, 25bp through Sep). We have seen the removal of some calls for a September BoE rate cut from sell-side forecasts following this week’s data.
- Little of note on the European & UK calendars ahead of the weekend, with macro focus on Fedspeak and U.S. UoM data.
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GERMAN AUCTION RESULTS: 30y Bunds
Jun-18 09:35
| 2.50% Aug-46 Bund | 2.50% Aug-54 Bund | |
| ISIN | DE0001102341 | DE000BU2D004 |
| Total sold | E1bln | E1.5bln |
| Allotted | E988mln | E1.408bln |
| Previous | E497mln | E818mln |
| Avg yield | 2.92% | 2.99% |
| Previous | 3.11% | 3.12% |
| Bid-to-offer | 7.27x | 2.03x |
| Previous | 7.75x | 1.85x |
| Bid-to-cover | 7.36x | 2.17x |
| Previous | 7.80x | 2.27x |
| Avg Price | 93.38 | 90.55 |
| Low Price | 93.37 | 90.53 |
| Pre-auction mid | 93.278 | 90.435 |
| Prev avg price | 90.61 | 88.21 |
| Prev low price | 90.61 | 88.18 |
| Prev mid-price | 90.553 | 88.127 |
| Previous date | 26-Mar-25 | 14-May-25 |
GILTS: Off Lows, Curve Bull Steepens After CPI
Jun-18 09:28
Gilts stick to narrow ranges, fading any weakness that initially stemmed from the CPI data (slightly firmer-than-expected headline Y/Y, slightly softer than-expected services).
- We have suggested that the BoE is likely to view today’s data as in line with expectations, therefore it should have little net feedthrough into tomorrow’s BoE decision.
- Our full preview of the BoE decision is available here.
- Gilt futures stick within yesterday’s range, trading as low as 92.48 before recovering to ~92.65.
- The bullish technical conditions in the contract remain intact, initial support and resistance located at 92.23 and 93.13, respectively.
- Yields 0.5-2bp lower, curve bull steepens.
- Multi-week ranges in yields and on major curves intact.
- GBP STIRs see similar moves to the long end and trade little changed on the day.
- BoE-dated OIS pricing ~48bp of cuts through year-end, with the next 25bp step more or less fully discounted through the September MPC.
- SONIA futures -0.5 to +2.0.
- Terminal rate pricing, proxied by SFIU6 at present, sits at 3.48% after touching 3.415% last week.
- We still lean towards an August cut.
RIKSBANK: Dovish Scenario Is A More Severe Version Of Current Outlook
Jun-18 09:25
Question from the MNI Policy Team on the "dovish" alternative scenario: You have two alternative scenarios. The downside is for falling business confidence as a result of uncertainty and a stronger krona. Isn't this the current scenario we are in?
A: The scenario is actually a more severe downturn in confidence than we are currently seeing.
- So we are currently kind of on the starting point of that scenario.
- For sure consumer confidence is very weak, but business confidence is better right now.
- So that scenario incorporates a downturn in business confidence and confidence in the global economy more generally.
Riksbank press conference ends.
