OIL: IOC Seek Crude Spot Contract Term Flexibility

A fairly sedate start to London trade for U.S. fixed income contracts, with the Asia bear steepening moves in the long end and SOFR futures STRIP holding.

• SOFR flow headlined by a recent 4K buyer of SFRZ5, paying 96.105.

Ahead of today’s Aug-35 Bund tap, Commerzbank write “the auction should meet lively demand as a decent short base has built up in repo, where the Aug-35 is trading relatively expensive”.

Gilts open lower, driven by the Japan-centric bearish inputs outlined earlier (Japan-U.S. trade deal, a weak 40-Year JGB auction and questions surrounding the future of PM Ishiba).

• Futures stick within yesterday’s range, basing at 91.70.
• Initial support at yesterday’s low (91.46), with resistance at yesterday’s high (92.15). The recent recovery from lows threatens the bearish technical backdrop.
• Yields 2-5bp higher, curve steeper.
• 10s in the middle of the range in play since late January, last ~4.60%.
• 2s10s and 5s30s remain tethered to 75bp and 140bp, respectively.
• Spread to Bunds 1bp wider at ~199bp.
• GBP STIRs a touch more hawkish than levels we flagged just ahead of the gilt open. SONIA futures flat to -4.5. BoE-dated OIS showing just under 50bp of cuts through year-end, with ~90% odds of a cut priced for next month.
• The DMO will come to market with GBP3bln of the 4.375% Jan-40 gilt this morning, see our recent preview bullet for greater colour on that matter.
• Little of note on the wider UK macro calendar today, which will leave cross-market impulses at the fore for much of the day.