BONDS: EGBs-GILTS CASH CLOSE: Twist Steepening Ahead Of Euro Inflation Round
European short-end instruments outperformed on respective curves Thursday, with long ends lagging in a twist steepening move.
- Core FI was on the front foot in early trade, largely following Treasuries' cue on reports (later disputed) that the White House could soon name the intended replacement for Federal Reserve Chair Powell.
- Whlie the short-end rally persisted, the long-end was under pressure through much of the rest of the session. Factors included a soft 20Y Gilt tender, and an intraday rebound in equities.
- There were multiple central bank speakers but they didn't deliver meaningful market impact, with BOE's Bailey hewing to the script of the June Minutes and not giving more away on his views on the labour market, while ECB's Schnabel noted that the monetary policy cycle is "coming to an end".
- Gilts outperformed Bunds across most of the curve. Periphery/semi-core EGB spreads tightened, with BTPs outperforming.
- Friday's calendar includes the beginning of the June flash Eurozone inflation round, with France and Spain (MNI preview here).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.8bps at 1.825%, 5-Yr is down 0.8bps at 2.134%, 10-Yr is up 0.4bps at 2.569%, and 30-Yr is up 1.8bps at 3.07%.
- UK: The 2-Yr yield is down 2.9bps at 3.827%, 5-Yr is down 3bps at 3.949%, 10-Yr is down 0.9bps at 4.472%, and 30-Yr is up 2.2bps at 5.253%.
- Italian BTP spread down 2.9bps at 88.4bps / Spanish down 2.1bps at 64.4bps
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US TSYS/SUPPLY: Review 2Y Note Auction: Solid
May's $69B 2Y Note traded through by 1bp at Tuesday's auction (3.955% high yield versus a 3.965% when-issued yield)..
- That's the highest trade-through for 2s since February and comes with mixed peripheral statistics: dealers took down just 10.5% of competitives (11.3% 5-auction average), with indirects of 63.3% slightly on the low side (5-auc average 72.9%) and bid-to-cover of 2.57x (5-auc average 2.62x), though each statistic was improved from April's weak sale.(0.5bp tail, 13.7% primary dealers/56.2% indirects, 2.52x bid-to-cover).
- Market reaction to the auction result was modestly positive, with the current 2Y Tsy dipping about 0.5bp to session low 3.968% (today's trade has largely been within Friday's ranges).
FED: US TSY 2Y NOTE AUCTION: HIGH YLD 3.955%; ALLOTMENT 90.40%
- US TSY 2Y NOTE AUCTION: HIGH YLD 3.955%; ALLOTMENT 90.40%
- US TSY 2Y NOTE AUCTION: DEALERS TAKE 10.48% OF COMPETITIVES
- US TSY 2Y NOTE AUCTION: DIRECTS TAKE 26.18% OF COMPETITIVES
- US TSY 2Y NOTE AUCTION: INDIRECTS TAKE 63.34% OF COMPETITIVES
- US TSY 2Y AUCTION: BID/CVR 2.57
EURUSD TECHS: Bull Phase Remains In Play
- RES 4: 1.1625 1.500 proj of the Feb 28 - Mar 18 - 27 price swing
- RES 3: 1.1608 High Nov 9 2021
- RES 2: 1.1573 High Apr 21 and the bull trigger
- RES 1: 1.1453 76.4% retracement of the Apr 21 - May 12 bear leg
- PRICE: 1.1330 @ 16:54 BST May 27
- SUP 1: 1.1271 20-day EMA
- SUP 2: 1.1143/1.1065 50-day EMA and a pivot level / Low May 12
- SUP 3: 1.1026 38.2% retracement of the Feb 3 - Apr 21 bull cycle
- SUP 4: 1.0943 Low Apr 10
EURUSD is trading just ahead of its latest highs. Trend conditions are bullish and moving average studies remain in a bull mode position, highlighting a dominant uptrend. The Apr 21 - May 12 bear leg appears to have been a correction. Sights are on 1.1453, a Fibonacci retracement. Key support lies at 1.1143, the 50-day EMA. A clear break of the average would highlight a stronger reversal and signal scope for a deeper retracement.
