BONDS: EGBs-GILTS CASH CLOSE: Short-End Underperformance Ahead Of ECB
Sep-10 17:56
EGBs and Gilts traded in mixed fashion Wednesday, with underperformance at the short end of respective curves.
- While Gilt yields remained within this week's ranges throughout the day, 10Y Bund yields touched an intraday post-Aug 7 low in early trade as markets digested overnight news of Poland downing Russian drones in its territory.
- Lower-than-expected inflationary pressures in the US producer price report saw a brief rally across global core instruments, but EGBs and Gilts were content to drift into the cash close ahead of event risk Thursday.
- The German curve twist flattened on the day, with the UK's bear flattening.
- OAT spreads were little changed albeit underperformed periphery/semi-core EGBs more widely, following overnight news that French President Macron had named centrist/ex-defence minister Lecornu as the new Prime Minister.
- While US CPI will garner significant attention, Thursday's European highlight is the ECB decision (MNI preview here in PDF).
- Along with the expected rate-hold along with communications reiterating a data dependent approach, Lagarde's characterisation of economic resilience and/or the extent to which uncertainty has been alleviated by the US-EU trade deal should help shape market reaction.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.1bps at 1.952%, 5-Yr is unchanged at 2.225%, 10-Yr is down 0.7bps at 2.652%, and 30-Yr is down 0.7bps at 3.273%.
- UK: The 2-Yr yield is up 2.6bps at 3.94%, 5-Yr is up 1.8bps at 4.055%, 10-Yr is up 1bps at 4.633%, and 30-Yr is up 0.5bps at 5.482%.
- Italian BTP spread down 0.6bps at 81.5bps / French OAT spread down 0.3bps at 80.9bps
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OPTIONS: Limited Trade To Open Week, With Sonia Upside Faded Pre-Labour Data
Aug-11 17:52
Monday's Europe bond/rate options flow included:
- SFIH6 96.70 calls 3.5K given at 5
US OUTLOOK/OPINION: Analyst Expectations For Sequential Drivers In July CPI
Aug-11 17:41
Core CPI sequential drivers in July are expected to come from used cars increasing modestly after a weak run plus travel-related services with lodging away from home pausing after declining and airfares increasing after broadly pausing.
- Lodging away from home (+ve): Seen broadly unchanged on the month after a heavy -2.9% M/M in June that subtracted -0.05pps from core CPI.
- Used cars (+ve): There’s a reasonable range of estimates for used car prices in July, from -0.5% to +0.7% but they all are stronger than the -0.7 M/M seen in June. The average estimate is 0.24% M/M after four months averaging -0.6% M/M.
- Airfares* (+ve): Seen rising 1.5% M/M after -0.1% in June following a period of prolonged, large declines with an average -3.7% M/M through Feb-May. The range of views of -0.4% to 2.5% is one of the narrower in recent months.
- Apparel (neutral to small +ve): Median of 0.5%/average 0.44% having accelerated to 0.43% M/M in June from a surprisingly soft -0.4% M/M in May.
- Vehicle insurance* (neutral to small +ve): Once again only three estimates this month with a decent range of -0.1% to 0.6% M/M. The average of 0.2% M/M would be a slight acceleration from the 0.1% in June but it’s a category that can swing from month to month with a sizeable 3.5% weight in core CPI.
- Rents (neutral): Owners’ equivalent rent (OER) seen dipping to an average 0.28% (range 0.25-0.30) after 0.30% in June, but with primary rents firming to an average 0.26% (range 0.22-0.34) after 0.23%.
- Non-core: Food (small -ve): Food price inflation is seen easing to 0.25% M/M in July after 0.33% M/M. Food away from home has continued a robust run recently, with 0.40% M/M in June and a 1H25 average of 0.36% (feeding into core PCE but not CPI). Food at home meanwhile has seen two months averaging 0.27%.
- Energy (-ve): Energy prices are seen falling circa -0.6% M/M after a 0.95% increase in May, driven by a more than 2% M/M decline in seasonally adjusted gasoline prices.
BONDS: Europe Pi: German Positioning Mixed (1/2)
Aug-11 17:37
From our latest Europe Pi futures positioning update (PDF):
- German contracts' structural positioning has been relatively steady since late July, with some subtle shifts. Schatz remains in "long", though has failed to pierce "very long" territory. Bobl has shifted into long territory alongside.
- Bund and Buxl remail short as with the last update.
- Shorts were set across 3 of 4 contracts last week, with the exception being Buxl (longs reduced).
