BONDS: EGBs-GILTS CASH CLOSE: OATs Extend Underperformance
Aug-27 18:10
OATs underperformed for a 3rd consecutive session as French political concerns lingered.
- Core EGBs and Gilts gained in morning trade, the latter after registering fresh cycle lows at the open, amid a bit of risk-off with equities sagging.
- Impactful data was limited, but regional politics were a key focus, with France's Sep 8 no-confidence vote continuing to weigh on OATs (the Dutch government survived a no-confidence motion of its own today, though this was expected).
- Outright OAT yields hit recent highs with 30Y seeing yields hit a 14-year high, as spreads to Bunds continued to widen.
- Trade turned more constructive going into the close, with OATs seemingly finding a footing, boosting Bunds and Gilts (as well as Treasuries).
- The belly outperformed on the German curve (despite a soft 7Y auction), with yields down throughout, while the UK curve saw yields drop more or less in parallel.
- Thursday's data schedule includes consumer and business confidence for Italy and the Eurozone, along with an appearance by the ECB's Rehn and the account of the July ECB meeting.
- The week's regional focus - the Eurozone August flash inflation round - technically starts Thursday (Belgium is due) but most attention will be on Friday's releases for Spain, France, Italy, and Germany. MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.3bps at 1.915%, 5-Yr is down 3.1bps at 2.237%, 10-Yr is down 2.3bps at 2.7%, and 30-Yr is down 1.3bps at 3.307%.
- UK: The 2-Yr yield is down 0.4bps at 3.964%, 5-Yr is down 0.6bps at 4.133%, 10-Yr is down 0.4bps at 4.736%, and 30-Yr is down 0.8bps at 5.6%.
- Italian BTP spread up 4bps at 87.3bps / French OAT up 5.1bps at 82.4bps
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US TSYS/SUPPLY: Fairly Narrow Range Of Expected Borrowing Estimates (2/2)
Jul-28 17:43
Our estimates made last week for borrowing requirements ($950-1,000B in Jul-Sep aka FYQ3, $600B for Oct-Dec aka FY Q4) appear to chime with several estimates we've seen since then (note it's almost unanimous that a $850B end-September cash target will be included in today's estimates). These include:
- Deutsche: Q3 borrowing requirement $960B, Q4 $680B
- Jeffries: Q3 borrowing requirement $957B, Q4 $575B
- Wrightson ICAP: Q3 borrowing requirement $980B, Q4 $650B
Estimates that we included in our refunding preview:
- CIBC: Marketable borrowing requirement of $942B in Jul-Sep on $471B financing need, Oct-Dec $726B marketable borrowing on $649B financing need
- JPMorgan: $1,087B and $572B borrowing requirements this quarter/next quarter respectively
- TD: $1,051B Jul-Sep quarter, $534B Oct-Dec. Tariffs could mean cash flows more positive.
- Wells Fargo: Marketable borrowing in Q3 $946B ($393B cash balance, $413B budget deficit); Q4 $592B
EUR: Sharpest One-Day Downmove Since Trump's Election Results
Jul-28 17:32
Persistent EUR/USD sales are pressing the rate lower still well after the London close, with EUR/USD now south of 1.1600 for the first time since mid-July's show below the handle (which proved to be short-lived, and may have cleared out S/T EUR positioning). The pair's ~180 pip losses are the largest one-day decline since November last year - the session capturing Trump's election results.
- The scale of today's reversal signals the markets' surprise at the terms of the EU-US trade deal. The 15% export tariff, minimal industry carve-outs and reduction of many tariffs to zero for EU-bound US products have opened the deal up for criticism - particularly in France. This leaves risks to growth larger than the ECB had anticipated, even as the worst case scenario has been avoided.
- As a result of today's price action, the 14-day RSI has slipped hard, below 50 for the lowest reading of the month and third-lowest of Trump's Presidential term so far. While medium-term trend indicators continue to highlight a dominant uptrend, today's price action shows the potential for near-term corrections lower.
- The pair has revisited the 50-dma - a level which has helped contain weakness on several occasions this year - and a containment of losses above 1.1565 will mean the M/T uptrend is still intact. Conversely, a break below this mark would signal a stronger reversal - making 1.1431 the initial downside target.
PIPELINE: Corporate Bond Roundup: $12B Mexico 5Y Launched
Jul-28 17:31
- Date $MM Issuer (Priced *, Launch #)
- 07/28 $12B #Mexico 5Y +170 (last time Mexico issued: $4.5B on June 23: $2.5B 7Y +175, $2B +12Y +230)
- 07/28 $2B #Deutsche Bank $1.7B 6NC5 +98, $300M 6NC5 SOFR
- 07/28 $1.5B Community Health Systems 8.5NC3 9.5%a
- 07/28 $Benchmark RBC 4NC3 +62.5, 4NC3 SOFR, 6NC5 +73, 6NC5 SOFR
- 07/28 $600M #Ally Financial 8NC7 +137
- 07/28 $Benchmark M&T Bank 10NC5 +145
- 07/28 $650M EW Scripps 5NC2 investor calls (expected to launch 7/29)
