BONDS: EGBs-GILTS CASH CLOSE: Modest Steepening, Tracking Treasuries
Dec-06 17:21
European yields moved in a fairly wide range but closed little changed Friday.
- Gilts and Bunds weakened in morning trade, with equities bid, and the space generally following the lead of US Treasuries for a second consecutive session.
- Core European FI rallied as the highly anticipated US employment report was taken favourably by rates markets, with aggregate payroll gains in line with expectations, but the unemployment rate moving a little higher than foreseen. But the move faded toward the cash close, again mirroring a modest pullback in Treasuries.
- The German curve marginally twist steepened on the day, with the UK's modestly bull steepening.
- After opening tighter to Bunds, OAT spreads retraced move of the initial move, widening throughout the session on continued political uncertainty after this week's government collapse. Periphery EGB spreads followed a similar path, finishing little changed on the day.
- Next week's highlight is the ECB meeting (a 25bp cut remains fully priced, little changed Friday) - we also get UK monthly activity data and an appearance by BoE's Ramsden.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.7bps at 2.001%, 5-Yr is down 1.7bps at 1.969%, 10-Yr is down 0.3bps at 2.108%, and 30-Yr is up 0.5bps at 2.316%.
- UK: The 2-Yr yield is down 1.3bps at 4.261%, 5-Yr is down 1.2bps at 4.133%, 10-Yr is down 0.6bps at 4.275%, and 30-Yr is down 0.3bps at 4.808%.
- Italian BTP spread down 0.2bps at 108.5bps / French OAT down 0.6bps at 76.8bps
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CANADA: BoC’s Rogers Remarks Due Shortly At 1225ET
Nov-06 17:20
- Senior Dep Gov Rogers speaks on the mortgage market ahead, with prepared text released at 1225ET. The event itself starts 1240ET after which there will be moderated Q&A.
- Yesterday’s BoC minutes unsurprisingly showed strong consensus for the Oct 23 50bp cut but also that some members feared a big cut would be read as a sign of trouble.
- BoC-dated OIS still sits close to a 50/50 call between another 50bp cut next month or a step back to 25bp clips, although now leans fractionally closer to 25bp rather than nearer 50bp in recent days.
- Can-US yield differentials are off fresh multi-year lows from earlier in the session but still historically low at -109bps for the 2Y and -111bp for the 10Y.
- USDCAD at ~1.393 remains off earlier highs of 1.3959 having tied with last week's fresh cycle high from Nov 1. It's close to a key medium-term resistance at 1.3977 (Oct 13, 2022 high) after which lies the 1.40 handle but with heavy CAD net shorts already in place seemingly helping limit further increases for now.
FOREX: USD Index Consolidating 1.65% Advance Following US Election
Nov-06 17:17
- The substantial victory for Donald Trump in the US election has prompted a surge of greenback strength. The USD index is currently 1.65% higher on the session, and the most notable underperformers are the Euro and the Japanese yen, reacting to the significant hawkish repricing in US rates.
- Today's EURUSD (-1.78%) slide is the largest since the onset of COVID, and the pickup in downside momentum has resulted in a break of a long-held trendline support drawn off the October '23 low (crossing at 1.0774 today).
- Below here, attention turns to 1.0666, the June 26 low and a key support. Protracted weakness would place focus on 1.0611, the 38.2% retracement of the Sep ‘22 - Jul ‘23 bull cycle.
- The USDJPY trend needle continues to point north, and today’s rally reinforces current conditions. The pair has extended above 153.88, the Oct 28 high, to highlight a resumption of the uptrend.
- A continuation higher would open 155.27, a Fibonacci projection. This level matches closely to the July 30 high of 155.22, a level traded one day prior to the BOJ hike and ensuing sharp move lower for USDJPY across early August.
- Central bank’s headline the G10 calendar on Thursday, with the Riksbank, Norges Bank, the BOE and the Fed all deciding on rates. The FOMC is on course to cut the Fed funds rate by 25bp as it takes another step in paring back restraint.
US TSYS/SUPPLY: US Preview 30Y Auction
Nov-06 17:17
Tsy futures remain sharply lower - yet off lows, curves steeper (2s10s +8.438 at 17.447) ahead the $25B 30Y Bond auction (912810UE6) at the top of the hour. WI currently running around 4.639%, 25.0bp cheap vs. last month's stop:
- October auction recap: Treasury futures held weaker (USZ4 120-04, -21) after the strong $22B 30Y auction re-open (912810UC0) stopped through: 4.389% high yield vs. 4.405% WI; 2.50x bid-to-cover vs. 2.38x in the prior month.
- Indirect take-up surged to new high of 80.47% vs. 68.68% prior; direct bidder take-up 7.37% vs. 15.66% prior; primary dealer take-up 12.16% vs. 15.66% prior.
- Timing: Today's results will be available shortly after the competitive auctions closes at 1300ET.
