BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform On Trump Tariff Threat
May-23 16:42
European yields fell sharply Friday as EU-US trade tensions ratcheted up.
- After a fairly subdued start to the session, global core FI soared in a risk-off move after US President Trump first threatened to place 25% tariffs on Apple phone imports, before then "recommending a straight 50% Tariff on the European Union, starting on June 1".
- There was no word as to the outcome of a call between EU Trade Commissioner Sefcovic and US Trade Representative Greer which was to have taken place within an hour before the European cash close.
- Bunds outperformed Gilts in the aftermath of Trump's tariff pronouncement, with the UK seen relatively insulated given the recent US-UK trade agreement. Additionally, UK retail sales data surprised to the upside (for the 4th consecutive month).
- Periphery / semi-core EGB spreads widened modestly on the day, though off the widest levels of the session. There was some attention on Moody's review of Italy after hours Friday (current rating Baa3; Outlook Stable).
- On the week, both the German and UK curves steepened: the UK's twist steepened (2Y -2.2bp, 10Y +3.2bp), with Germany's bull steepening (2Y -9.1bp, 10Y -2.3bp).
- Monday is a market holiday in the UK, while the key data highlight the rest of the week is flash May inflation in multiple Eurozone countries.
Closing Yields / 10-Yr EGB Spreads To Germany:
- Germany: The 2-Yr yield is down 6.7bps at 1.764%, 5-Yr is down 7.5bps at 2.097%, 10-Yr is down 7.6bps at 2.567%, and 30-Yr is down 6.3bps at 3.088%.
- UK: The 2-Yr yield is down 4.8bps at 3.983%, 5-Yr is down 7.1bps at 4.13%, 10-Yr is down 7bps at 4.681%, and 30-Yr is down 7bps at 5.48%.
- Italian BTP spread up 0.8bps at 101.7bps / French OAT up 1.5bps at 69.5bps
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US DATA: New Home Sales Impress In March, Supply Still Elevated
Apr-23 16:31
New home sales rose much more strongly than expected in March, to 724k on a seasonally-adjusted annualized basis (vs 685k survey, 674k prior downward rev by 2k). While homebuilder surveys suggest significant pessimism over future prospects, for the moment March's reading marked a 6-month high and one of the 3 best months in the last 3 years.
- With existing home sales remaining moribund as high mortgage rates impair the ability for homeowners to move, new home sales continue to represent an elevated proportion of total sales (just under 30%, vs <15% pre-pandemic).
- With 503k new homes for sale at the end of last month - the most since December 2007 - the current pace of sales is equivalent to 8.3 months of supply, down from 8.9 months prior but still elevated on a historic basis. Single-family building permits have remained steady at around 1 million annualized over the past two years, so it looks like the supply pipeline remains open.
- As we have seen in other data points, activity in the South region - which represents two-thirds of overall new home sales - was strong, with a 13.6% M/M rise (potentially reflecting an improvement in weather).
- With supply coming online and mortgage rates still high, median prices are declining: on a Y/Y basis, they were down 7.5%, to $403.6k.
STIR: BLOCK: Dec'25 SOFR Call Spread Sale
Apr-23 16:27
-5,000 SFRZ5 96.62/97.12 call spds, 13.0 vs. 96.49/0.18% at 1218:51ET
