EM CEEMEA CREDIT: INDON: foreign debt '25 projection

The recovery in risk appetite following yesterday’s constructive comments from Bessent and Trump leaves Bund futures -31 ticks versus yesterday’s settlement levels at 131.64. The weaker-than-expected Eurozone April flash services PMIs (led by Germany and France) may have aided the recovery from session lows of 131.44.

• Initial resistance and the bull trigger remains at 132.03, the April 7 high. Meanwhile, the April 17 low at 130.87 provides support.
• The Eurozone-wide services PMI was 49.7 (vs 50.5 cons, 51.0 prior). While the miss was expected given the weaker-than-expected French and German data earlier this morning, the smaller deviation from consensus (compared to FR/GE) suggests the EZ ex-France and Germany was a little better than expected.
• The German curve has bear flattened, with Schatz yields up 6bps.
• Today’s E4bln 2.50% Feb-35 Bund auction saw very soft results, but the market impact was limited.
• Spreads have been set for today’s triple tranche Austrian syndicated tap.
• 10-year EGB spreads to Bunds are tighter owing to the risk backdrop. The BTP/Bund spread is down 3bps to ~113.5bps.
• Portugal will ask the EU to use a fiscal rule escape clause to allow for increased defence spending.
• Eurex will launch a joint EU bond future on September 10 2025.
• The remainder of today’s regional calendar includes ECB-speak from Knot, Villeroy, Lane and Cipollone.

• Another German auction with soft demand - this time for a 10-year Bund.
• That was the smallest volume of bids for a 10-year Bund auction since October 2022.
• Some of this is expected as it is a smaller auction size (E4.0bln rather than the recent E4.5bln) but the bid-to-offer of 1.06x compares to 1.64x earlier this month and the bid-to-cover of 1.38x compares to 2.16x - so those metrics are weak too.
• Still not a big impact on Bund futures.

Twist flattening has dominated on the gilt curve this morning, with 3 factors defining this morning’s price action:

• Spillover from Tsys after U.S. President Trump pushed back against the idea that he was looking to fire Fed Chair Powell, as well as some comments pointing to the potential for a moderation in the Sino-U.S. trade war.
• The DMO’s revised gilt remit surprising most by coming in marginally lower than the prior estimate, skewing issuance further away from the long end in the process (T-bill, short-dated and unallocated bucket issuance was revised higher, while long-end issuance was revised lower).
• Softer-than expected flash PMIs.
• Gilt futures broke through initial resistance at the open, with bulls now looking to pierce 93.00 before shifting focus to a Fibonacci retracement at 93.44. The contract last prints 92.80 vs. session highs of 92.95.
• Yields 3.5bp higher to 9bp lower.
• 2s10s ~13bp off cycle closing highs, last ~65.6bp.
• 5s30s ~11bp off yesterday’s cycle closing high, last 127.8bp.
• BoE-dated OIS covering ’25 meetings back to little changed on the day, showing 92bp of cuts through year-end, with the next 25bp step still fully discounted through the May meeting. Recent range extremes of ~97bp of cuts through year-end remains untested/intact.
• Comments from BoE’s Pill (11:30 BST), Bailey (18:15 BST) & Breeden (19:00 BST) due throughout the day.