BONDS: EGBs-GILTS CASH CLOSE: Gilts Outperform Ahead Of BoE
Mar-19 17:38
Gilts outperformed Bunds Wednesday ahead of the BoE.
- Core FI started strong amid a risk-off move on political volatility in Turkey, with the session's best levels hit in early morning European trade.
- From there, Bunds and Gilts softened alongside a nascent recovery in equities and oil prices, in a fairly subdued trading session for headline risk and data with attention paid to the Fed decision after the cash close.
- In data, Eurozone final March inflation showed services prrice pressures appear to have seen a material dip in February.
- The UK and German curves both twist flattened, with Gilts outperforming Bunds across the curve.
- Periphery / semi-core EGB spreads tightened in alignment with stronger equities.
- Thursday's calendar includes UK labour market data (preview here) and the BOE decision (preview here). It would be a huge surprise if there was anything other than a pause in the MPC’s cutting cycle with unchanged guidance, but the vote split will once again be in focus.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2bps at 2.196%, 5-Yr is up 0.5bps at 2.465%, 10-Yr is down 0.6bps at 2.804%, and 30-Yr is down 3.1bps at 3.09%.
- UK: The 2-Yr yield is up 0.5bps at 4.206%, 5-Yr is down 0.2bps at 4.293%, 10-Yr is down 1.2bps at 4.631%, and 30-Yr is down 1.5bps at 5.214%.
- Italian BTP spread down 0.8bps at 110bps / French OAT down 0.7bps at 67.6bps
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SWITZERLAND: USDCHF Consolidating Below 50-day EMA
Feb-17 17:34
USDCHF exhibited sharp weakness late last week, as greenback sentiment was driven by softer US PPI details & weak retail sales data, and the Swiss Franc was bolstered by stronger-than expected January core CPI figures. USDCHF has been consolidating the break of its 50-day EMA, an average that provided significant support since the US election.
- Swiss Q4 GDP growth came in above expectations this morning, bolstering the renewed CHF optimism, alongside indications that long USDCHF positions have recently been trimmed, according to latest CFTC data.
- Broader dollar optimism has been waning in recent sessions, with tariff announcements being viewed rather as a negotiating tool and potentially questioning the pre-election pledges of the Trump administration. Furthermore, Ukraine peace talks starting to take shape have helped major equity indices maintain their elevated levels, providing an additional headwind for the USD.
- The bearish threat for USDCHF remains evident, and further weakness would initially target 0.8965, the January low. A break would open a cluster of lows around 0.8920 seen last December. Initial resistance is now seen at 0.9065, the 20-day EMA.
EUROZONE ISSUANCE: BTP Piu Retail Orders Hit E5.6bln On First Day
Feb-17 17:16
- At the end of the first day, books on the retail-only Feb-33 BTP Piu transaction (ISIN: IT0005634792) were E5.6bln according to Reuters reporting of Bourse data.
- For comparison, first day sales for the March 2024 6-year BTP Valore launch were E6.44bln (35% of the eventual E18.3bln raised). Meanwhile, sales for the May 2024 6-year BTP Valore launch were E3.70bln (33% of the eventual E11.2bln raised).
- Assuming day 1 sales make up ~34% of the total BTP Piu issuance, this suggests E16.5bln will be raised across the week.
- The BTP Piu will form part of the BTP Valore family and will include an option for an early redemption after 4 years as well as a step-up coupon. The minimum coupon rates are 2.80% for years 1-4 and 3.60% for years 5-8.
- Unless there is an early close, books for the BTP Piu will close on Friday at 1300CET.
ECB: Holzmann Sees “Some” Probability Of March Cut, Markets At 98%
Feb-17 17:09
- ECB’s Holzmann, a pre-eminent hawk and with a voting role at the March meeting, has been reported on newswires as saying there’s “some” probability of a March rate cut.
- “Some” is at odds with the market where OIS has another 25bp cut as 98% priced.
- He goes on to add that decisions in favor of more cuts are “getting harder”.
- His comments are the closest to pushback on this market pricing ahead of the March decision just over 2 weeks away.
- See our weekly summary of ECB Speak published earlier today: https://media.marketnews.com/250217_Weekly_ECB_Speak_Wrap_3f23c8ea91.pdf
