BONDS: EGBs-GILTS CASH CLOSE: Short End Underperforms As ECB Eyes July Hike
Jun-15 16:04
The German curve twist flattened Thursday as the ECB hiked by the expected 25bp and Pres Lagarde cemented expectations for a further raise in July. Gilts outperformed Bunds slightly, but the UK curve likewise twist flattened.
- Schatz sold off on the ECB decision, which included an unexpected upgrade to the 2025 inflation forecast.
- While Lagarde underpinned hike pricing for the next meeting ("very likely we will continue to increase rates in July"), unexpectedly weak US jobless claims figures helped drag global yields back down and ultimately yields finished off their session highs.
- Periphery spreads tightened with the exception of Greece, which saw widening for the 4th consecutive session following last Friday's lack of a positive ratings action from Fitch.
- Friday's morning's focus will be the final, detailed Eurozone readings, along with several ECB speakers including Holzmann, Rehn, Muller, Centeno, and Villeroy.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 11bps at 3.126%, 5-Yr is up 9.8bps at 2.605%, 10-Yr is up 5.2bps at 2.504%, and 30-Yr is down 0.4bps at 2.58%.
- UK: The 2-Yr yield is up 8.5bps at 4.907%, 5-Yr is up 6.3bps at 4.535%, 10-Yr is down 0.8bps at 4.384%, and 30-Yr is down 5.7bps at 4.502%.
- Italian BTP spread down 1bps at 162.6bps / Greek up 4.4bps at 135.7bps
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LOOK AHEAD: Wednesday Data Calendar: Housing Starts, Build Permits, 20Y Sale
May-16 16:04
- US Data/Speaker Calendar (prior, estimate)
- May-17 0700 MBA Mortgage Applications (6.3%, --)
- May-17 0830 Housing Starts (1.42M, 1.40M); MoM (-0.8%, -1.4%)
- May-17 0830 Building Permits (1.43N rev, 1.43M); MoM (-7.7% rev, 0.0%)
- May-17 1130 US Tsy $39B 17W bill auction
- May-17 1300 US Tsy $15B 20Y Bond auction (91282CGK1)
BONDS: Bunds And Gilts Dragged To Session Lows By USTs
May-16 15:45
Bunds and Gilts push to session lows, led by the drop in US Tsys - no headline catalyst seen. Front Gilts now testing Monday's low of 100.37; the May 10 low of 134.99 is in sight for Bunds (last 135.19).
- That said, the bear flattening move in European curves is less pronounced than in their US counterpart (little movement in ECB / BoE hike pricing, vs a mini-spike of ~2bp In June FOMC hike expectations the last few minutes).
US TSYS: Extending Lows, Short End Catching Up With Bond Sale
May-16 15:44
- Treasury futures extend session lows the last few minutes, curves bending from steeper to flatter as short end rate sellers catching up up with bonds.
- No particular headline as 2Y futures fall 7.12 to 102-30 low, yield mark 4.1158% high; 10s -16.5 to 114-23 low; 2s10s curve -3.352 at -54.625.
- Markets should also be seeing launch of Pfizer multi-tranche debt issuance, potentially larger than an already huge $30B estimate, spurring additional rate lock sales.
