BONDS: EGBs-GILTS CASH CLOSE: German Long End Underperforms On Issuance Concerns
European FI traded mixed Tuesday, with Gilts gaining and easily outperforming Bunds, and periphery EGB spreads tightening.
- Germany's Q3 issuance plan was in line with expectations though the curve steepened on indications of possible 50Y issuance, helping pressure the broader FI space. But lower oil prices on the overnight US/Iran/Israel de-escalation helped subdue any short-end yield rise.
- Global core FI regained ground by middle of the European afternoon however, led by Treasuries as Fed Chair Powell was seen to be open to earlier rate cuts if data warranted, while US consumer confidence and labor market indications were weaker than expected.
- In European data, German IFO Business Climate/Expectations beat expectations. There were several central bank speakers, with BOE's Ramsden perceived dovishly, while ECB's Lane drawing headlines for seeing some caution on services disinflation (though nothing really new).
- The German curve bear steepened on the day, with the UK's leaning bull flatter (out to the 10-year segment).
- Periphery/semi-core EGB spreads tightened in a risk-on session, with BTPs outperforming.
- Wednesday sees a quieter central bank communications schedule, with BOE's Lombardelli the lone scheduled speaker, while in data we get French consumer confidence and Spanish GDP/PPI readings.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.3bps at 1.851%, 5-Yr is up 2.1bps at 2.131%, 10-Yr is up 3.6bps at 2.543%, and 30-Yr is up 6.5bps at 3.026%.
- UK: The 2-Yr yield is down 1.7bps at 3.872%, 5-Yr is down 1.7bps at 3.991%, 10-Yr is down 1.9bps at 4.473%, and 30-Yr is down 0.4bps at 5.208%.
- Italian BTP spread down 5.5bps at 91.9bps / Greek bond spread down 3.5bps at 73.9bps
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
