BONDS: EGBs-GILTS CASH CLOSE: Long Ends Outperform Post-US Tariff Pause
Apr-10 17:32
European bonds went in divergent directions Thursday, with Gilts rallying strongly but Bunds relatively flat on the day.
- Core instruments gained in early trade in a follow through from Wednesday's "pause" of US reciprocal tariffs on most economies, including the EU and UK.
- Long-end instruments outperformed, gaining steam in afternoon trade first on a soft US inflation number, and as equities and oil pulled back sharply with tariff-related economic concerns resurfacing.
- BOE's Breeden told an MNI event "risks of a further sharp correction to risky asset prices to remain high."
- Gilts outperformed overall, with the UK curve bull flattening, in something of a relief rally after recent underperformance. The German curve twist flattened, with short-end yields backing up.
- Periphery/semi-core EGB spreads tightened, once again with higher-beta instruments outperforming (ie BTP).
- Friday's schedule includes UK monthly activity data and an appearance by ECB's Lagarde.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.1bps at 1.786%, 5-Yr is up 1.1bps at 2.113%, 10-Yr is down 1.1bps at 2.58%, and 30-Yr is down 0.5bps at 2.96%.
- UK: The 2-Yr yield is down 8.8bps at 3.903%, 5-Yr is down 14.3bps at 4.078%, 10-Yr is down 13.6bps at 4.643%, and 30-Yr is down 15.2bps at 5.428%.
- Italian BTP spread down 4.8bps at 124.3bps / French down 4.2bps at 76.4bps
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CANADA: PM-Designate Carney Pledges To Keep Retaliatory Tariffs In Place
Mar-11 17:25
Canadian Prime Minister-designate Mark Carney has pledged to keep Canadian trade countermeasures in place, after US President Donald Trump's trade war escalation today.
- Carney said on X: "President Trump’s latest tariffs are an attack on Canadian workers, families, and businesses. My government will ensure our response has maximum impact in the US and minimal impact here in Canada, while supporting the workers impacted. My government will keep our tariffs on until the Americans show us respect and make credible, reliable commitments to free and fair trade."
- Conservative leader Pierre Poilievre indicated earlier that there is broad support across the political spectrum for a forceful Canadian response. Poilievre said in a lengthy statement on X, in response to Trump's metals tariff hike: "I am calling on the government to immediately bring in retaliatory tariffs to respond to this unjust act and to protect Canadian steel and aluminum workers. If President Trump is applying 50 percent tariffs on our steel and aluminum then Canada must hit back with 50 percent tariffs..."
- Poilievre added: "I am calling on Mark Carney to reverse his plan to impose a massive new industrial carbon tax on Canadian steel and all other heavy industry."
- Ontario Premier Doug Ford, whose surcharge on electricity sparked today's escalation, said: "Trump’s tariffs are causing chaos. Markets are tanking. He needs to drop his tariffs and come to the table to negotiate a fair trade deal. Until he does, we won’t back down."
US TSYS/OVERNIGHT REPO: Overnight Reverse Repo Takeup Picks Back Up
Mar-11 17:21
Takeup of the Fed's overnight reverse repo facility continued to fluctuate Tuesday, rising $8.3B to $137.3B (after falling $7.3B prior and rising $7.0B two sessions ago).
- The rise is not unexpected, as we had flagged ON RRP takeup could rise in line with large Treasury bill paydowns Tuesday, and this keeps takeup in recent ranges.
US TSYS/SUPPLY: 3Y Auction Results: Very Solid Despite Tail
Mar-11 17:10
The $58B 3Y auction was very solid despite a modest 0.6bp tail (high yield 3.908% vs when-Issued yield of 3.902% at auction cutoff).
- The tail was in-line with recent auctions (0.3bp average in previous 5 sales including January's strong 1.2bp trade-through), and came despite a lack of significant concession going into the auction.
- Dealer takeup was merely 11.5% of competitives, one the 5 lowest since at least the early 2000s and just slightly up from February's post-2023 low 10.2%.
- The bid-to-cover ratio likewise dipped slightly to 2.70x from February's post-2023 high 2.79x, but this was still the 2nd highest cover since 2023.
- Directs took 26.0% with indirects 62.5%.
- Short-end yields dipped slightly (2Y by 0.3bp) following the result.
