BONDS: EGBs-GILTS CASH CLOSE: Partial Recovery From Weak Start
Jul-25 16:31
European core FI partially recovered from a weak start Friday.
- EGBs and Gilts weakened from the start, on follow-through from Thursday's hawkish-leaning ECB communications and a hawkish BOJ sources piece overnight (pointing to potential for another rate hike in Japan this year).
- Pressure began to ease thereafter though, with Bunds in particular rallying steadily throughout the session.
- Attention was on multiple encouraging EU-US trade headlines throughout the day, punctuated after the cash close by EU's von der Leyen saying that she would discuss trade with President Trump on Sunday.
- UK retail sales were softer-than-expected, adding to evidence of increasing consumer caution. German July IFO survey was slightly weaker-than-expected, while French and Italian consumer confidence improved.
- On the day, German yields shifted slightly higher in parallel across the curve, while the UK saw twist flattening. For the week, the UK curve bull flattened (2Y -1.8bp, 10Y -3.9bp), with Germany's bear flattening (2Y +7.8bp, 10Y +2.3bp).
- Periphery/semi-core EGB spreads tightened, led by Greece and Italy.
- Apart from this weekend's US-EU trade talks, attention next week will be Eurozone data including Q2 Flash GDP and July Flash Inflation.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.6bps at 1.948%, 5-Yr is up 1.7bps at 2.298%, 10-Yr is up 1.6bps at 2.718%, and 30-Yr is up 1.5bps at 3.207%.
- UK: The 2-Yr yield is up 2.2bps at 3.884%, 5-Yr is up 2.6bps at 4.058%, 10-Yr is up 1.3bps at 4.635%, and 30-Yr is down 1.1bps at 5.449%.
- Italian BTP spread down 1.4bps at 83.4bps / Greek down 1.6bps at 67.9bps
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US TSYS/SUPPLY: Preview 5Y Auction: Current WI 19.4Bp Rich to Last Month's Stop
Jun-25 16:05
- Tsy futures are trading off mid-morning lows (TYU5 currently -4 at 111-17 vs. 111-11.5 low) ahead of the $70B 5Y note auction (91282CNK3) at 1300ET, WI is currently running at 3.877%, 19.4bp rich to last month's stop.
- May auction recap: reaction was positive: 5s richened about 0.5bp on the 2s5s7s butterfly, with 10Y yields down 1.4bp to 4.477%. Typically solid with the 4.071% high yield representing a 0.4bp trade-through versus the 4.075% when-issued yield at auction cutoff. Bid-cover of 2.39x - in line with the 5-auction average.
- This was the 6th 5Y auction in the last 7 to trade through with more solid peripheral statistics than usual: A record (going back to data from the early 2000s) high 78.4% takedown by indirects (seen by some as a proxy for foreign investors) was a highlight, and well up from the 69.0% prior 5-auction average.
- Primary dealers took down just 9.2% of competitives, below the 11.7% average of the prior 5 auctions, and the lowest since January 2023 - which was in turn the lowest on record (going back to the early 2000s).
US 10YR FUTURE TECHS: (U5) Bull Cycle Remains Intact
Jun-25 15:57
- RES 4: 112-23 High May 1 and key resistance
- RES 3: 112-04+ High May 2
- RES 2: 111-30/31+ 76.4% of May 1-22 downleg / 1.0% 10-dma env
- RES 1: 111-24 Intraday high
- PRICE: 111-17 @ 16:53 BST Jun 25
- SUP 1: 110-23 50-day EMA
- SUP 2: 110-10+/109-28 Low Jun 16 / Low Jun 6 / 11
- SUP 3: 109-12+ Low May 22 and the bear trigger
- SUP 4: 109-09+ Low Apr 11 and key support
Treasury futures are holding on to this week’s gains. Price has traded above resistance at 111-14+, the Jun 5 high and 61.8% of the May 1 - 22 downleg. The clear break of this hurdle strengthens a bullish cycle and has opened 111-30, a Fibonacci retracement. Clearance of 111-30 would strengthen current conditions. Initial pivot support to watch lies at 110-23, the 50-day EMA. A clear breach of this EMA would signal a potential reversal.
US TSY OPTIONS: Aug'25 10Y Vol for Sale
Jun-25 15:46
- -5,000 TYQ5 111.5 straddles 131-130 ref 111-16
- -8,000 TYQ5 110.25/112.75 strangles, 36 ref 111-16
