BONDS: EGBs-GILTS CASH CLOSE: Gilt Rally Resumes
Feb-05 17:31
European curves flattened Wednesday, with Gilts outperforming.
- EGBs and Gilts benefited in early trade amid a lack of meaningful headline flow and softer oil prices and equities (tech earnings, US tariff concerns in the background), with Gilts outperforming on solid demand at a green bond auction.
- The rally extended in afternoon trade as the day's key data report, US ISM Services, came in on the soft side of expectations.
- ECB Chief Economist Lane drew a modestly hawkish reaction as he flagged risks that disinflation could take longer than expected; Centeno noted that the ECB may have to cut below neutral.
- The German curve twist flattened, with the UK's bull flattening as 10Y Gilt yields saw one of their biggest drops in several months (8.5bp), hitting the lowest level since mid-December. EGB periphery EGB spreads were mixed.
- French OAT saw slightly tighter spreads to Bunds on the day though they underperformed BTPs, as PM Bayrou's government survived a no-confidence vote.
- The Bank of England decision will be Thursday's focus (with apologies to German factory orders). MNI's preview (link) looks for a 25bp cut on an 8-1 vote, with any meaningful tweaks to forward guidance unlikely. Attention will be paid to other matters including the Agents' Pay Survey, and the MPR projections.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.6bps at 2.057%, 5-Yr is down 1.5bps at 2.155%, 10-Yr is down 3bps at 2.366%, and 30-Yr is down 4.7bps at 2.599%.
- UK: The 2-Yr yield is down 3.1bps at 4.15%, 5-Yr is down 6.4bps at 4.124%, 10-Yr is down 8.5bps at 4.437%, and 30-Yr is down 10.2bps at 5.023%.
- Italian BTP spread down 1.5bps at 108.5bps / French OAT down 0.4bps at 71.6bps
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US TSYS/SUPPLY: Preview 3Y Note Auction
Jan-06 17:23
Tsy futures are trading near learly morning highs ahead of the $58B 3Y note auction (91282CMF5) at 1300ET, WI is currently at 4.321%, 20.4bp cheap to last month's auction.
- December auction recap: Treasury futures remained weaker, near lows after nearly in-line $58B 3Y note auction (91282CMB4) drew 4.117% high yield vs. 4.115% WI; 2.58x bid-to-cover vs. 2.60x prior.
- Peripheral stats saw indirect take-up recede to 64.18% vs. 70.62% prior; direct bidder take-up rebounds off prior low of 9.62% to 20.71%; primary dealer take-up recedes to 15.11% vs. 19.75% prior.
- Timing today's 3Y note sale: results will be available shortly after the competitive auctions closes at 1300ET.
EUROPEAN INFLATION: Bundesbank Estimates Firmer Sequential German Services CPI
Jan-06 17:17
The Bundesbank’s estimate of seasonally-adjusted German CPI suggests sequential core and services inflation accelerated in December. Respective mid-term momentum measures were mixed and did not see a major shift this month, however. The December data overall points towards some inflation stickiness at an elevated level.
- Overall core inflation accelerated to 0.26% M/M SA (0.17% in Nov, 3.1% annualized) on a seasonally adjusted basis per Buba, as services inflation accelerated to 0.26% M/M (0.09% in Nov, 3.2% annualized). Even so, the rate of sequential services CPI remained below its 2024 average of 0.34%.
- Manufactured goods ex-energy inflation meanwhile remained broadly unchanged, at 0.25% M/M (vs 0.26% in Nov, 3.1% annualized).
- 3M/3M measures were mixed: core 0.78% (0.75% prior), services 0.73% (0.79% prior), and manufactured goods ex-energy was 0.88% (0.71% prior).
LOOK AHEAD: Tuesday Data Calendar: JOLTS, ISM Services, Tsy 10Y Re-Open
Jan-06 17:12
- US Data/Speaker Calendar (prior, estimate)
- 7-Jan 0800 Richmond Fed Barkin economic outlook, (text, Q&A)
- 7-Jan 0830 Trade Balance (-$73.8B, -$78.3B)
- 7-Jan 1000 JOLTS Job Openings (7.744M, 7.750M)
- 7-Jan 1000 JOLTS Job Openings Rate (4.6%, --)
- 7-Jan 1000 JOLTS Quits Level (3.326M, --), Rate (2.1%, --)
- 7-Jan 1000 JOLTS Layoffs Level (1.633M, --), Rate (1.0%, --)
- 7-Jan 1000 ISM Services Index (52.1, 53.5)
- 7-Jan 1000 ISM Services Prices Paid (58.2, 57.5)
- 7-Jan 1000 ISM Services Employment (51.5, 51.1)
- 7-Jan 1000 ISM Services New Orders (53.7, 54.0)
- 7-Jan 1130 US Tsy $85B 42D CMB auction
- 7-Jan 1300 US Tsy $39B 10Y Note re-open (91282CLW9)
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