BONDS: EGBs-GILTS CASH CLOSE: Rally Takes A Breather Ahead Of ECB
European yields rose modestly Tuesday, with some of the bull flattening seen over the past week taking a breather.
- Gilt and Bund yields gapped higher on the open, but largely traded within recent ranges in the morning session. Gilts outperformed Bunds early, in part helped by a strong 20Y UK auction.
- With European data (including French industrial production and UK BRC shop sales) not proving impactful, attention was on US benchmark payroll revisions.
- The latter delivered a bigger downward revision to payrolls through Q1 2025, triggering a rally for global core FI upon release (10Y Gilt yields briefly hit a fresh post-Aug 14th low).
- But the move slowly reversed as the revision was within a broad range of analyst forecasts and attention swiftly turned to US inflation data coming Wednesday and Thursday.
- Both the German and UK curves bear steepened modestly, with periphery/EGB spreads mixed (OATs outperformed).
- The week's European focus is Thursday's ECB decision. MNI's preview went out today (here): there appears to be little to no appetite for a September rate cut amongst ECB Governing Council members but we suspect there still an underlying easing bias.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.5bps at 1.941%, 5-Yr is up 1.6bps at 2.225%, 10-Yr is up 1.7bps at 2.659%, and 30-Yr is up 1.6bps at 3.28%.
- UK: The 2-Yr yield is up 1.1bps at 3.914%, 5-Yr is up 1.4bps at 4.037%, 10-Yr is up 1.8bps at 4.623%, and 30-Yr is up 1.8bps at 5.477%.
- Italian BTP spread down 0.8bps at 82.1bps / French OAT down 2.6bps at 81.0bps
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
