EMISSIONS: Investor Calls For Dual Market For Removals Credits In UK ETS

OI data points to a second consecutive day of meaningful net long setting in curve-wide terms on Tuesday.

• Only WN futures bucked the wider trend, with modest net short cover seen there.
• TY futures accounted for roughly half of the ~$8.7mn DV01 of net longs added across the curve.

• With the USD Index resuming the multi-month downtrend on the Iran-Israel ceasefire, USD/TWD has broken through to new pullback lows, with spot closing at 29.380, the lowest since June 2022. TWD strength is also playing a major part, with upside pressure stemming from increased foreign investor participation. Exchange data shows foreign investors were net buyers of $1.2bln Taiwanese stocks Wednesday, making for net purchases of ~$1.7bln this week alone.
• This comes despite the Taiwanese authorities looking to pressure speculators by dissuading foreign investors from using tools such as ETFs to garner larger long TWD positions. This week's price action, however, may provide a sign that this messaging is not yet working.
• The rally in TWD spot is also being felt in the front-end of the implied curve: 1-month USD/TWD vols were bid through 11 points today, meeting the levels seen in early May and the initial life insurer-driven spot rally and breakout in volatility.
• On foreign investor participation ahead, HSBC write that the peak of the local dividend season is forthcoming, and that may slow the pace of TWD appreciation ahead. The concentrated distribution of dividends through July & August has tended to increase FX outflow pressures in recent years - and they estimate 2025's season to be more concentrated to July (they see $8.3bln in payments to foreign investors this year, largely via TSMC, Hon Hai and MediaTek - all of which are in July). 

GILTS: Gilts have ticked away from early session highs, with moves in core global FI peers and disappointing demand at the latest 15-Year auction factoring in (corrected from 10-year).

• Futures pierce yesterday’s high before paring back from best levels, -9 at 93.38 last (93.33-57 range).
• The technical outlook in the contract remains bullish, next upside target is the June 13 high (93.68).
• Meanwhile, support is located at the 20-day EMA (92.51).
• Yields little changed to 2bp lower, curve bull steepens.
• Fundamentals point towards a steepening bias (further BoE cuts, with dovish risks, alongside limited fiscal headroom), although already crowded positioning, as well as a more activist approach from policymakers when it comes to containing spikes higher in long end yields, present risks to this idea.
• 10s spread vs. Bunds little changed at ~192.5bp.
• No headlines of note from the BoE’s CCBS conference as of yet.
• Modest dovish adjustments in GBP STIRs vs. closing levels.
• SONIA futures flat to +1.0, BoE-dated OIS pricing 52bp of cuts through year-end vs. ~51.5bp late yesterday.
• The June high in SFIZ5 remains unchallenged, as does the recent dovish extreme in Dec BoE-dated OIS (~55bp of cuts). However, SFIZ6 has registered a fresh multi-week high, switching bullish focus to the cluster of early May highs.