BONDS: EGBs-GILTS CASH CLOSE: Curves Flatten On Back-And-Forth US Tariff News
Apr-23 17:58
European curves flattened Wednesday, with Bunds underperforming Gilts.
- Bunds were steadily weakening with Gilts a little stronger on the day when an WSJ afternoon sources article pointed toward potential for the US relaxing tariffs on China sent core FI sharply lower. While this was later talked down by US Tsy Sec Bessent, Bunds and Gilts largely held their losses.
- The Eurozone-wide services PMI was on the soft sign of expectations, with weaker-than-expected French and German data appearing to be offset by stronger performances elsewhere in the Eurozone.
- Meanwhile in the UK, public sector net borrowing was higher than expected, though like the Eurozone, Services PMI disappointed. BoE Gov Bailey's speaking appearance was not market-moving.
- While the German and UK curves moved in parallel across the short-end/belly, Gilts outperformed in the segments beyond that with the UK curve twist flattening (vs German bear flattening).
- EGB periphery/semi-core spreads closed tighter amid equity gains and the Bund sell-off, with BTPs and OATs outperforming.
- German IFO leads Thursday's data docket, while we get multiple ECB speakers including Lane.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 8.5bps at 1.746%, 5-Yr is up 6.6bps at 2.048%, 10-Yr is up 5.4bps at 2.497%, and 30-Yr is up 5.2bps at 2.911%.
- UK: The 2-Yr yield is up 8.6bps at 3.916%, 5-Yr is up 5.9bps at 4.039%, 10-Yr is up 0.7bps at 4.552%, and 30-Yr is down 5.9bps at 5.309%.
- Italian BTP spread down 3.3bps at 113.3bps / French OAT down 3.7bps at 73.8bps
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OPTIONS: Put Structures Preferred To Call Counterparts Monday
Mar-24 17:52
Monday's Europe rates/bond options flow included:
- ERJ5 97.6875p, bought for half and 0.75 in 13.5k total
- ERM5 97.75/97.62ps 1x1.5, bought for 2.25 in 4k
- 2RM5 97.62/97.4375/97.25p ladder, bought for 3.75 in 4k
- SFIM5 95.90/96.10/96.30c fly sold at 1 in 8k
- SFIU5 95.45/95.75/96.05 call fly 10K given at 9.5
- SFIZ5 96.20/96.30cs vs 95.75/95.65ps, sold the cs at half in 5k
BONDS: EGBs-GILTS CASH CLOSE: Twist Steepening On Mixed PMIs, US Tariff Talk
Mar-24 17:46
Gilts outperformed Bunds Monday amid mixed PMIs and US tariff news.
- Core yields rose in early trade following reports that the Trump administration would pursue targeted rather than broad indiscriminate tariffs in its highly-anticipated announcement next week.
- The rest of the session proved mixed. Bunds rallied as Eurozone services PMI disappointed (dragged down primarily by Germany), with manufacturing beating expectations. The UK saw the opposite dynamics (strong services, weak manufacturing), weighing on Gilts.
- Above-expected US Composite PMI (with better services offsetting manufacturing weakness) saw European instruments pull back to session lows.
- Just before the cash close, core FI got a slight safe-haven bid as US Pres Trump announced that tariff announcements on autos and pharmaceuticals would be announced "soon".
- Both the German and UK curves twist steepened modestly on the day, with short-end yields falling. Periphery/semi-core spreads tightened slightly.
- BoE's Bailey speaks after the cash close - it's possible he could offer further insight on the new risks cases for the MPC. Overarching focus this week is on Wednesday's UK inflation data and government's fiscal statement/gilt remit.
- Tuesday brings German IFO data.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.1bps at 2.121%, 5-Yr is unchanged at 2.404%, 10-Yr is up 0.6bps at 2.771%, and 30-Yr is up 0.8bps at 3.111%.
- UK: The 2-Yr yield is down 0.4bps at 4.261%, 5-Yr is down 0.5bps at 4.341%, 10-Yr is up 0.1bps at 4.713%, and 30-Yr is up 1.2bps at 5.322%.
- Italian BTP spread down 1.4bps at 110.1bps / Spanish down 1.1bps at 63.1bps
FOREX: Post-PMI Greenback Advance Consolidates, USDJPY Rises 0.85%
Mar-24 17:41
- The dollar index had been trading close to unchanged levels before the US PMI flash PMIs, however, the firmer than expected readings for both services and composite data propelled the DXY roughly 0.25% higher on the session. This advance has been consolidating as we approach the APAC crossover.
- The majority of the action has been centred around the Japanese yen once more on Monday, negatively impacted by both higher US yields and surging US equity indices. The major US benchmarks have been buoyed by Trump's supposed targeted tariffs blunting the blow of trade measures from the April 02 deadline. USDJPY rose as high as 150.76 and remains +0.84% on the day.
- Overall, the primary trend direction in USDJPY is down and recent gains are considered corrective. Key resistance to watch is 151.01, the 50-day EMA. A clear break of this average would signal scope for a stronger rally. Initial support is found at 148.18, the Mar 20 low. Key support and the bear trigger remain at 146.54, the Mar 11 low.
- Late headlines crossed from Trump on an imminent announcement on car tariffs, knocking the major indices off their best levels. Price action then weighed on the likes of EUR and GBP, keeping the DXY rally underpinned.
- GBPUSD is 0.1% lower at typing but had been an early outperformer on the back of UK flash services PMI surprising to the upside this morning. Bullish technical conditions remain intact for the pair, as a plethora of short-term risk events are awaited this week. Standing out here is the Spring Statement, CPI data and activity data due Friday. Pricing for an GBPUSD straddle expiring on Friday incorporates a move of around +/- 90 pips from current spot levels of 1.2910.
- German IFO is scheduled Tuesday, before US data includes new home sales and consumer confidence.
