BONDS: EGBs-GILTS CASH CLOSE: Bull Flattening Fades Prior Session's Weakness
European yields reversed some of Tuesday's sell-off in a bull flattening move Wednesday.
- In addition to fading the prior session's somewhat unusual sell-off that didn't seem driven by headline/macro developments, Wednesday saw yields pull back in tandem with a retreat in oil prices in anticipation of peace developments on the Russia-Ukraine front.
- Also helping buoy global instruments was US Treasury Secretary Bessent opining that the Federal Reserve should consider cutting rates by 50 basis points in September, and 150-175 overall.
- Data was limited in impact, with German and Spanish final July HICP confirming flash estimates.
- Gilts lagged the Bund rally, with the UK Guardian reporting on potential inheritance tax adjustments in the Autumn Budget.
- Periphery/semi-core EGBs had a constructive session led by BTPs, in a broader risk-on move (10Y BTP/Bund approaches the 2010 low of 75.4bp).
- Thursday's agenda includes UK monthly economic activity / Q2 GDP data, with Eurozone industrial production, GDP, and Employment data also featuring.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3.3bps at 1.934%, 5-Yr is down 6.1bps at 2.257%, 10-Yr is down 6.4bps at 2.68%, and 30-Yr is down 7.1bps at 3.228%.
- UK: The 2-Yr yield is down 2.2bps at 3.863%, 5-Yr is down 3.1bps at 4.009%, 10-Yr is down 3.7bps at 4.589%, and 30-Yr is down 3.9bps at 5.428%.
- Italian BTP spread down 1.7bps at 77.1bps / French OAT down 1.2bps at 65.6bps
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BONDS: EGBs-GILTS CASH CLOSE: Curves Continue To Steepen, But Gilts Outperform
The previous week's rise in yields took a breather Monday, but curves continues to steepen.
- Yields fluctuated but resolved higher up in early trading, stemming from the weekend's threat of higher US tariffs on the EU and Mexico.
- Bund yields largely retained their early rise. However dovish comments from BoE Governor Bailey (noting potential for easier policy if the labour market deteriorates quicker than the Bank expects) and the soft REC labour market report helped Gilts outperform on the day.
- Core FI was bid into the European cash close, helped by a continued pullback in oil prices.
- 30Y German yields continued to march higher, to another fresh post-2011 high close, as fiscal concerns persisted.
- The UK curve bull steepened on the day, with Germany's twist steepening. Periphery / semi-core EGB spreads moved a little wider.
- On the calendar Tuesday: French PM Bayrou is set to unveil the main proposals of the 2026 state budget and we get the German ZEW survey. In the UK, the Mansion House event Tuesday and inflation and labour market data on Wednesday and Thursday are the key risk events of the week.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.4bps at 1.876%, 5-Yr is down 1bps at 2.278%, 10-Yr is up 0.4bps at 2.729%, and 30-Yr is up 1.8bps at 3.245%.
- UK: The 2-Yr yield is down 4.4bps at 3.812%, 5-Yr is down 2.8bps at 4.015%, 10-Yr is down 2.2bps at 4.6%, and 30-Yr is down 0.3bps at 5.43%.
- Italian BTP spread up 1.7bps at 86.3bps / Spanish up 0.8bps at 61.4bps
GBPUSD TECHS: Pierces The 50-Day EMA
- RES 4: 1.3835 High Oct 20 2021
- RES 3: 1.3800 Round number resistance
- RES 2: 1.3681/3789 High Jul 04 / 01 and the bull trigger
- RES 1: 1.3588 20-day EMA
- PRICE: 1.3459 @ 15:49 BST Jul 14
- SUP 1: 1.3452 Low Jul 14
- SUP 2: 1.3419 Trendline support drawn from the Jan 13 low
- SUP 3: 1.3371 Low Jun 23
- SUP 4: 1.3335 Low May 20
A softer short-term tone in GBPUSD remains in place and the pair is trading lower once again, today. Price has pierced a key support around the 50-day EMA, at 1.3481. A clear break of this level would undermine a bull theme and signal scope for a deeper retracement. Note that a trendline support - drawn from the Jan 13 low - lies at 1.3419. A break of this support would strengthen a bearish threat. Initial firm resistance to watch is 1.3681, the Jul 4 high.
US: FED Reverse Repo Operation
RRP usage rises to $217.841B this afternoon from $181.637B Friday, total number of counterparties at 45. Usage had fallen to $54.772B on Wednesday, April 16 -- lowest level since April 2021 - compares to yesterday's (July 1) $460.731B highest usage since December 31.
