BONDS: EGBs-GILTS CASH CLOSE: Yields Pull Back From Early Session Highs
Gilts outperformed EGBs amid an intraday rally Monday.
- Yields jumped in the re-open from the weekend, following the US's bombing of Iranian nuclear sites.
- Global core FI rallied in late morning/early afternoon trade though, with oil prices fading, and dovish comments by a Federal Reserve official (Bowman).
- Eurozone flash June services PMI was in line with expectations, with Germany notably beating consensus; manufacturing was slightly below expected with France notably missing.
- UK manufacturing / services PMI respectively beat/met expectations.
- The German curve leaned bull steeper, with the UK's bull flatter. EGB periphery/semi-core spreads closed slightly tighter.
- Tuesday's data slate includes German IFO and UK CBI trends, while we hear from the majority of the BOE MPC (including Bailey and Pill), as well as multiple ECB speakers.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.2bps at 1.838%, 5-Yr is down 0.8bps at 2.11%, 10-Yr is down 1bps at 2.507%, and 30-Yr is down 1.1bps at 2.961%.
- UK: The 2-Yr yield is down 3bps at 3.889%, 5-Yr is down 3.5bps at 4.008%, 10-Yr is down 4.5bps at 4.492%, and 30-Yr is down 5.8bps at 5.212%.
- Italian BTP spread down 0.7bps at 97.4bps / Spanish down 0.8bps at 69.1bps
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
