GILTS: Holding Lower, Futures And Yields Respect Recent Ranges
Jul-25 09:34
Gilts outperform Bunds following softer-than-expected retail sales data, but ultimately trade lower on the day given hawkish cues from abroad (namely source reports and rhetoric re: the BoJ & ECB).
- Futures remain within yesterday’s range, registering a fresh session low at 91.23 in recent trade.
- Initial support at yesterday’s base (91.18), which protects the bear trigger at the July 18 low (91.08).
- Yields 3-4bp higher, curve flatter. Pre-existing month-to-date highs intact across major benchmarks.
- 2s10s and 5s30s don’t stray too far from 75bp & 140bp, respectively, after spill over from yesterday’s ECB decision promoted some flattening yesterday afternoon.
- 10-Year gilt/Bund spread further away from the 200bp marker after failure to close above the round number in recent sessions.
- Spread last 2bp tighter at ~190bp, off session lows.
- GBP STIRs generally a literally more hawkish on the day given influence from the long end, but retail sales means that pricing doesn’t stray too far from 50bp of cuts through year-end (just under 90% odds of a cut showing for August, with 47bp of easing priced through year-end). Pre-existing July lows in SFIZ5 & Z6 are untouched.
- Little of note on the UK calendar for the remainder of the day, which leaves focus on macro matters and spill over from wider global markets.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Aug-25 | 3.993 | -22.4 |
Sep-25 | 3.957 | -26.0 |
Nov-25 | 3.804 | -41.3 |
Dec-25 | 3.747 | -47.0 |
Feb-26 | 3.636 | -58.1 |
Mar-26 | 3.606 | -61.1 |
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EGBS: Early Rally In Bunds Fades; Pullback From Jun 13 High Still Corrective
Jun-25 09:29
Early downward pressure in 10-year Bund yields stalled just above the 2.50% level, with yields across the curve now back to ~1bp lower on the day. There wasn’t a clear headline driver for the early rally in EGBs, with markets still digesting the de-escalation in the Middle East alongside yesterday’s German and Italian fiscal/issuance announcements.
- Bund futures are -4 ticks at 130.80, peaking at 131.12 earlier this morning. Bunds remain in consolidation mode, trading below the Jun 13 high. For now, the recent move down appears to be a correction. Key short-term support to watch lies at 130.12, the Jun 5 low.
- The 10-year BTP/Bund spread found support at the 90bp handle, with a pullback in European equities from session highs helping to spread back to 91.5bps. Italy sold E3.0bln of the new 2.10% Aug-27 BTP Short Term and E3.0bln of the new 1.10% Aug-31 BTPei this morning.
- In France, the Socialist party has submitted a censure motion against the Bayrou government. Although RN leader Bardella said his party would not support the current motion, he still signalled that a vote of no confidence could still be called in response to the 2026 budget, proposals for which will be detailed next month. The 10-year OAT/Bund spread is 1.5bps narrower today at 69bps despite the evident political risks.
- Today’s regional data calendar has been light (French consumer confidence was a little weaker-than-expected), with focus turning to the Spanish and French flash June inflation prints on Friday.
- There will be some interest in the outcome of today's NATO summit, with leaders expected to sign off on a much briefer communique than is usually the case at these events, due to its truncated nature. Commitments on the '3.5%+1.5%' of GDP on defence spending is likely to be agreed, although potentially with wording that allows Spain, still holding out on the 5% total, to accept.
FOREX: USD/JPY Bounces, But S/T Tech Drivers Still Point Lower
Jun-25 09:26
- Australian monthly CPI came in lower-than-expected, which could call into question the RBA's next inflation outlook round, however the currency is again firmer off lows and holding the bulk of the recovery off Monday's 0.6373. This price actions favours this week's weakness as a false break below the bottom-end of the multi-month trend channel, and a reversion higher here would make 0.6552, the June 16 high and bull trigger, the primary upside target.
- USD/CHF remains within range of cycle lows after the solid outperformance posted from the beginning of the week. Having initially benefited from haven flows on the exchange of fire between Israel and Iran, the CHF has held the rally, keeping 0.8035 in sight as the next downside level in USD/CHF.
- Meanwhile, USD/JPY is recouping a small part of the sharp losses posted off the 148.03 high, putting prices back above Y145.50 in what's likely a corrective rally off the pullback lows. This week's price action has formed a shooting star candle pattern - which argues in favour of further S/T losses in the pair. The 50-dma marks the next downside level at 144.25, but we see the 20-day EMA at 144.81 as more materially important in the short-term. The level has been pierced, but a clear break of it would strengthen a bearish threat.
- May new home sales data is the sole US release Wednesday. This should keep focus on the second appearance from Fed's Powell this week, this time in front of the Senate Finance Committee. He struck a balanced tone on policy yesterday, however a mention from the Fed chair that rate cuts could come faster on "lower inflation, weaker labor" still elicited interest from markets, despite the Fed chair again implying September is the next 'Live' meeting.
- The ongoing NATO meeting in the Netherlands will be carefully watched for cohesion around Trump's latest narrative that the US has secured firmer military commitments from Europe, despite remaining signs of dissention among countries including Spain. The US President remains in NATO sessions until 1040ET, at which time he is scheduled to return to the White House.
EQUITIES: Estoxx Rolling Call Option
Jun-25 09:16
SX5E (18th July vs 15th Aug) 5250c, bought the Aug for 32 in 5k (suggest rolling Call).
