BONDS: EGBs-GILTS CASH CLOSE: Powell Ensures 10Y Yields Down On The Week
The highly-anticipated Jackson Hole speech by Federal Reserve Chair Powell brought a dovish message, spurring a rally across global FI Friday that included EGBs and Gilts.
- Bunds outperformed global peers in early trade, though moves were limited as markets awaited Powell's comments. German Q2 GDP was revised downward, with ECB Q2 negotiated wages broadly in line with tracking estimates.
- Yields dropped sharply in mid-afternoon trade as Powell signaled openness to a September Fed cut in more overt fashion than had been expected, noting a "shifting balance of risks may warrant adjusting our policy stance".
- Bund yields finished a little higher than the levels seen in the immediate aftermath of Powell's speech, but Gilt yields continued to fall, closing near session lows.
- A Bloomberg sources piece pointed to a September ECB hold, but markets took little impact with rate markets already pricing that in.
- The German and UK curves both bull flattened on the day, while periphery/semi-core EGB spreads tightened in a broader risk rally.
- For the week, the German curve bull flattened with the UK's twist flattening: UK 2Y +1.1bp, 10Y -0.3bp; German 2Y -2.5bp, 10Y -6.6bp.
- Saturday includes a panel at Jackson Hole with BOE's Bailey and ECB's Lagarde, with next week's calendar highlight being August flash Eurozone inflation data.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.4bps at 1.948%, 5-Yr is down 3.8bps at 2.277%, 10-Yr is down 3.5bps at 2.722%, and 30-Yr is down 1.8bps at 3.309%.
- UK: The 2-Yr yield is down 2.6bps at 3.944%, 5-Yr is down 2.3bps at 4.101%, 10-Yr is down 3.6bps at 4.693%, and 30-Yr is down 3bps at 5.548%.
- Italian BTP spread down 2bps at 80.4bps / French OAT down 1.2bps at 69.5bps
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GBPUSD TECHS: False Trendline Break?
- RES 4: 1.3789 High Jul 01 and the bull trigger
- RES 3: 1.3689 76.4% retracement of the Jul 1 - 16 bear leg
- RES 2: 1.3577 50.0% retracement of the Jul 1 - 16 bear leg
- RES 1: 1.3563 High Jul 23
- PRICE: 1.3560 @ 16:05 BST Jul 23
- SUP 1: 1.3365 Low Jul 16 and the short-term bear trigger
- SUP 2: 1.3335 Low May 20
- SUP 3: 1.3245 Low May 19
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
GBPUSD traded higher again Wednesday, extending the recovery from the Jul 16 low. The recent spell of weakness resulted in a break of trendline support drawn from the Jan 13 low. The breach is a bearish development, however, the latest bounce also highlights a possible false break. Note that M/T signals still highlight an uptrend. The next resistance to watch is 1.3577, a Fibonacci retracement. The bear trigger is 1.3365, Jul 16 low. A break would resume a bear theme.
SOFR OPTIONS: Large Sep'25 SOFR Call Condor Buy
- +20,000 SFRU5 95.75/95.81/95.93/96.00 call condors 2.12-2.25
- +3,000 0QZ5 97.25/97.75/98.00 1x3x2 call flys 4.0 ref 96.825
- +14,000 SFRZ5 95.75/95.87/96.25/96.37 put condors 5.75-6.0 earlier
BONDS: Europe Pi: Gilts Stand Out At "Short", OATs / BTPs Steady (2/2)
In non-German contracts:
- OAT: OAT remains in flat territory (having flirted with longs in June). The most recent week's trade was indicative of long setting.
- GILT: Gilt structural positioning remains in short territory. In contrast to other European contracts, shorts were set in the last week.
- BTP: BTP continues to extend further into "very long" territory. Trade indicative of long-setting was seen in the most recent week.
