BONDS: EGBs-GILTS CASH CLOSE: Periphery Leads Broad Rally
European yields dropped sharply Thursday, with periphery/semi-core EGBs outperforming overall.
- Following the bond rout earlier this week on the back of re-escalation between the US and Iran, EGBs and Gilts traded more constructively in early trade in a bull steepening move as energy prices abated.
- The initial optimism would fade and yields picked up off session lows by late morning. But ultimately the rally would resume and continue through to the cash close, with oil pulling back more decisively as US desks came online and reacted to various cues (including a lack of strikes on Iranian energy infrastructure).
- Yields would close on the session lows, with bull steepening across both the UK and German curves and Gilts slightly outperforming Bunds.
- And as noted, periphery/semi-core spreads tightened substantially amid a cross-asset risk on move, with Italian and Greek 10Y spreads falling 6bp.
- Even so, yields remain well above levels coming into the week.
- The accounts of the ECB's latest meeting show a decision to be deliberately neutral on whether the June hike was the start of a hiking cycle or a one-off move whilst unsurprisingly reiterating it was a robust policy decision.
- Data on Friday includes some final June inflation readings including France and Germany, along with some industrial production readings (including Italy). We also get commentary from ECB's Vujcic and Stournaras.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 6.2bps at 2.647%, 5-Yr is down 5.2bps at 2.766%, 10-Yr is down 0.8bps at 3.084%, and 30-Yr is down 1.5bps at 3.626%.
- UK: The 2-Yr yield is down 9bps at 4.241%, 5-Yr is down 8.3bps at 4.429%, 10-Yr is down 7.7bps at 4.897%, and 30-Yr is down 6.7bps at 5.624%.
- Italian BTP spread down 6.2bps at 75.4bps / French OAT down 5.3bps at 77.1bps
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EURGBP TECHS: Bear Threat Remains Present
- RES 4: 0.8747 76.4% retracement of the Feb 27 - Mar 16 bear leg
- RES 3: 0.8742 High Mar 31 and Apr 1 and a bull trigger
- RES 2: 0.8731 High May 18
- RES 1: 0.8664/82 50-day EMA / High May 29
- PRICE: 0.8632 @ 16:42 BST Jun 9
- SUP 1: 0.8618 Low May 25
- SUP 2: 0.8610 Low Mar 16 and the bear trigger
- SUP 3: 0.8597 Low Aug 14 ‘25
- SUP 4: 0.8576 Low Jul 2 ‘25
EURGBP is unchanged. Trend signals are bearish and S/T gains are considered corrective. Attention is on key support at 0.8610, the Mar 16 low. Clearance of this level would highlight an important medium-term bearish breakout. On the upside, key resistance to watch is 0.8742, the Mar 31 and Apr 1 high. Initial firm resistance is 0.8664, the 50-day EMA, recently pierced. A clear break of the average would be a short-term bullish development.
US: Iran Rises As Concern For American Public - TIPP
A new survey from TIPP Insights has found, “Cost of living and inflation sit at the top of the public’s concerns, with the economy close behind. The US-Iran conflict now ranks third, ahead of health care and immigration.”
- The report notes, “Cost of living and inflation dominate. 43% of respondents name it among the top three issues facing the country, far ahead of any rival and up sharply from the winter, when it stood at 31%. The economy ranks second at 30%. The U.S.-Iran conflict enters the top tier at 23%, a new arrival in a list that looked very different a few months ago.”
- TIPP continues, “Inflation unites the electorate. Cost of living tops the list for every group: Democrats at 42%, Republicans at 41%, and independents at 46%. Republicans rank the U.S.-Iran conflict second at 28%, above the economy and above immigration.”
Figure 1: “What are the top three issues facing the country?”
Source: Tipp Insights
GBPUSD TECHS: Support Remains Exposed
- RES 4: 1.3658 High May 1 and a key resistance
- RES 3: 1.3574 76.4% retracement of the May 1 - 18 bear leg
- RES 2: 1.3522 61.8% retracement of the May 1 - 18 bear leg
- RES 1: 1.3435/1.3509 20-day EMA / High May 26
- PRICE: 1.3384 @ 16:41 BST Jun 9
- SUP 1: 1.3303 Low May 18 and the bear trigger
- SUP 2: 1.3277 76.4% retracement of the Mar 31 - May 1 bull leg
- SUP 3: 1.3212 Low Apr 7
- SUP 4: 1.3159 Low Mar 31 and a key support
Key short-term support in GBPUSD at 1.3303, the May 18 low, remains exposed. Clearance of this price point would strengthen a bearish threat and pave the way for an extension towards 1.3277, the 76.4% retracement of the Mar 31 - May 1 bull leg. Clearance of this level would strengthen a bearish theme and open 1.3159, the Mar 31 low. Key short-term resistance is at 1.3509, the May 26 high.
