GILTS: Holding Lower On Macro Factors, Swap Spreads Narrow
Mar-05 10:20
Gilt futures to fresh session lows of 92.05 in recent trade.
- The bullish short-term technical setup is at risk.
- Key short-term support at 91.79, the Feb 20 low.
- Yields 8-11bp higher across the curve, steepening seen.
- Increased odds of a more meaningful fiscal impulse out of Germany has driven a sell off in core global FI markets, along with swap spread narrowing.
- The UK/Germany10-Year yield spread is set to close below 200bp for the first time since October (more on that to follow).
- Suggestions that U.S. President Trump could moderate tariffs against both Mexico and Canada, as well as the presence of 5-Year gilt supply, provided further pressure.
- That was before 5-Year supply was well-received.
- Domestic headline flow has focused on the need for further fiscal spending cuts as Chancellor Reeves’ already limited fiscal headroom is eroded, although that had little market impact as fiscal headwinds are well documented.
- BoE-dated OIS prices 51.5bp of cuts through year-end vs. ~57bp late yesterday.
- 19bp priced through the May MPC and 24bp priced through June. We still look for a 25bp cut in May at this stage.
- SONIA futures flat to -16.0, strip steepens.
- Looking ahead, a Treasury Select Committee appearance from BoE’s Bailey, Pill, Taylor & Greene gets underway at 14:30 GMT.
- However, macro cues should continue to dominate.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Mar-25 | 4.453 | -0.2 |
May-25 | 4.265 | -19.0 |
Jun-25 | 4.213 | -24.2 |
Aug-25 | 4.082 | -37.4 |
Sep-25 | 4.047 | -40.8 |
Nov-25 | 3.962 | -49.3 |
Dec-25 | 3.941 | -51.4 |
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FOREX: CAD Sinks to Multi-Decade Lows on Tariff Hammer
Feb-03 10:10
- Intraday vol and headline risk picked up over the weekend, as Trump set in place to invoke an emergency in order to install 25% tariffs on Canadian and Mexican imports - effective from 0001ET on Tuesday. This leaves calls with the Canadian and Mexican leaders today (a call with Trudeau already set for Monday "morning") as a final opportunity at which to delay or lessen the impact of trade levies.
- USD/CAD gapped notably higher at the open, tipping the rate to touch a high of 1.4793 and the highest level since 2003. The sharper moves for USD/CAD bring >$800mln of option expiries at C$1.4895 on Wednesday into play but, more notably, it's the ~$3bln set to roll off between C$1.4740-1.4800 that should draw attention. A sizeable proportion of that expiry slate is made up of calls, and could keep prices supported across the week and through the dual US/Canadian jobs reports set for Friday.
- Give the deteriorating trade backdrop and 10% tariff threat also levied against China, growth-proxies and risk sensitive currencies are faring the worst off, as AUD/USD slippage puts the pair at a new cycle low. The $0.6088 print marks a new post-COVID low and isolates $0.6099 as key at the close - that level marks the 76.4% retracement of the rally off 2020 lows.
- Headline risk remains high, with much market focus on calls between the White House and Canada & Mexico. Data releases include the ISM Manufacturing print for January - seen keeping pace with the December reading to broadly mimic the data patterns seen in the MNI Chicago Business Barometer print from Friday. Fed's Musalem and Bostic are the central bank speakers of note.
EURIBOR: EURIBOR FIX - 03/02/25
Feb-03 10:07
Source: EMMI/Bloomberg
- EUR001W 2.7870 -0.0140
- EUR001M 2.6440 -0.0160
- EUR003M 2.5620 -0.0270
- EUR006M 2.5360 -0.0540
- EUR012M 2.4360 -0.0830
MNI: ITALY JAN FLASH HICP -0.7% M/M, +1.7% Y/Y
Feb-03 10:00
- MNI: ITALY JAN FLASH HICP -0.7% M/M, +1.7% Y/Y
