BONDS: EGBs-GILTS CASH CLOSE: Gilts Maintain Underperformance For The Week
Jul-18 17:14
European yields rose modestly Friday, with curve steepening seen in both EGBs and Gilts.
- There were few evident macro/headline catalysts, with yields weighed down early (with a pickup in energy prices and equities) and no subsequent recovery.
- For the third consecutive session, Gilt yields gapped higher at the cash open, and didn't deviate much through the session. 10Y yields saw the highest intraday yields since June 2 and highest close since May 28, with the curve twist steepening.
- Bund yields also picked up modestly in early trade but remained within Thursday's ranges for the rest of the session. The German curve bear steepened.
- Periphery EGBs erased a bit of early weakness to close very slightly tighter to Bunds.
- For the week, Gilts badly underperformed Bunds, partly on the back of more solid-than-expected labour market and CPI data.
- The UK curve bear steepened mildly on the week, with Bunds easily outperforming as German yields moved lower in parallel across the curve: UK 2Y yields +4.6bp / 10Y + 5.2bp; German 2Y yields -3.0bp / 10Y -3.0bp.
- Next week's main event is the ECB decision Thursday - with a rate hold expected, focus will be President Lagarde’s characterisation of risks at the press conference, which will likely shape the market reaction. Flash July PMIs and the ECB's Q2 Bank Lending Survey will also garner attention.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.8bps at 1.87%, 5-Yr is up 1.1bps at 2.24%, 10-Yr is up 2bps at 2.695%, and 30-Yr is up 3.4bps at 3.232%.
- UK: The 2-Yr yield is down 0.3bps at 3.902%, 5-Yr is up 0.1bps at 4.089%, 10-Yr is up 1.9bps at 4.674%, and 30-Yr is up 2.9bps at 5.511%.
- Italian BTP spread down 0.4bps at 85.5bps / Spanish flat at 61.6bps
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STIR: 47bp Of Cuts Priced For 2025 With FOMC And Dot Plot At 1400ET
Jun-18 17:13
- Fed Funds implied rates are a little off session lows as we head within an hour of the FOMC decision.
- It has been helped by crude oil futures paring losses but WTI still -0.6% as near-term inflationary implications from the Israel-Iran conflict continue to set the tone for pricing for intraday moves in 2025 meetings.
- Cumulative cuts from 4.33% effective: 0bp for today, 3.5bp Jul, 19bp Sep, 30.5bp Oct and 47bp Dec.
- SOFR futures have flattened further today as growth concerns weigh further out the curve, with SFRZ5Z6 at -0.65 (-0.02) although it’s off session lows of -0.66.
- The SOFR implied terminal yield has pushed a quarter out, now seen landing in the H7. The yield of 3.23% is 5bp lower on the day, having last closed lower on Jun 4.
- Dot plot and projections watched. From the MNI Preview: “The new quarterly projections will still signal the resumption of rate cuts later this year, but likely only one 25bp reduction instead of the two cuts envisaged at the March meeting.”
- “While risks to both the Fed’s inflation and employment mandates remain elevated, with the new 2025 forecasts looking increasingly reflective of stagflation, the Committee should still signal rate cuts through end-2026 of a similar magnitude to its previous set of projections”
- https://media.marketnews.com/Fed_Prev_Jun2025_With_Analysts_a9c8a317ff.pdf
BOC SAYS CORE CPI INDEXES MAYBE DISTORTED, TREND MORE LIKE 2%
Jun-18 17:10
- BOC SAYS CORE CPI INDEXES MAYBE DISTORTED, TREND MORE LIKE 2%
- BOC TRACKING BROADER RANGE OF TREND INFLATION MEASURES
BOC SAYS RECENT SENTIMENT DATA REMAINS LOW BY ANY STANDARD
Jun-18 17:05
- BOC SAYS RECENT SENTIMENT DATA REMAINS LOW BY ANY STANDARD
