EGBS: German Curve Steepens As Finance Ministry Mulls 50-year Bund
The German 10s30s extended earlier steepening after the German Finance Agency, DFA, noted that “internal conditions” had been created for a 50-year Bund in its Q3 issuance plan press conference. The curve is almost 4bps steeper at 48.5bps at typing with 2s10s also up almost 4bps to 70.5bps. Meanwhile, long end ASWs have come under fresh pressure.
- The Q3 issuance plan itself was in line with MNI’s expectations, with a E15bln increase in overall bond issuance, skewed towards the new 7-year maturity bucket.
- Meanwhile, the German 2025 budget and 2026-29 key figures appear in line with yesterday’s media reports. 2025 net borrowing is seen at E82bln, rising to E89bln in 2026 and E126bln by 2029.
- Bund futures are -64 ticks at 130.43, with initial support at 130.17 (Jun 16 low) and 130.07 (2.60% 10-year yield level).
- Early price action was dictated by developments in the Middle East, with oil and natural gas futures selling off sharply on reports of a ceasefire between Israel and Iran. Latest headline flow suggests this ceasefire may be fragile.
- Germany sold E4bln of the 1.7% Jun-27 Schatz today.
- 10-year EGB spreads to Bunds are biased tighter, led by BTPs (-5bps to 92bps). Although reports of the Iranian strike on Israel dented risk sentiment somewhat, European equities remain up 1.7% todays. Latest Bund underperformance has supported narrowing momentum.
- The German June IFO Business Climate and Expectations components were stronger-than-expected, while the Current Assessment was a touch weaker.
- Several ECB speakers (de Guindos, Kazimir, Lagarde and Lane) are scheduled to speak today.
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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".
