CREDIT RATING: JLR: Moody's Upgrade

Gilts have recovered from session lows, after being pressured by concession ahead of this morning’s 10-Year auction.

• Gilts based just ahead of the bidding deadline, with the auction generating solid demand metrics, despite the LAP printing comfortably below the pre-auction mids.
• Futures breached their April 15 low (91.43), basing at 91.39 before a recovery to 91.50.
• Yields effectively flat on the day across the curve.
• 2s continue to trade sub-4.00% after yesterday’s brief and limited break above.
• 10-Year yields have pierced the April 15 high (4.672%) during the past couple of sessions but haven’t meaningfully extended beyond that point.
• BoE-dated OIS little changed on the day, showing 47bp of cuts through year-end, with the next cut fully discounted through the end of the September MPC.
• SONIA futures little changed to 3.0 lower, terminal BoE pricing (proxied by SFIU6) sits at ~3.60%, 30bp above recent dovish extremes.
• Hawkish BoE dissenter Mann didn’t move markets as she outlined the reasoning behind her latest vote, while Deputy Governor Breeden didn’t touch on monetary policy.
• Macro and cross-market cues are eyed from here, with little of note on the UK calendar until tomorrow’s preliminary Q1 GDP data.

BTP Block trade, suggest buyer:

• IKM5 1.66k at 119.34.

The Italian BTP is still outperforming, BTP/Bund spread ticks just below the 100.00bps handle.

• An early phase of USD weakness came alongside reports that the US and South Korea had discussed FX policy as part of trade talks - a standout report considering negotiations with both Japan and China has explicitly not covered currency issues. The move in the greenback was isolated to currency markets given the relative stability in equities and the front-end of the US curve. EUR/USD showed to a new weekly high in response, but USD/JPY is more notable - the price is close to fully erasing the entirety of the China-triggered rally from early Monday morning on healthy volumes.
• USD/JPY slippage Wednesday confirms the bearish technical bias for the pair. A further reversal lower would refocus attention on 142.36, the May 6 low, below which April's pullback low comes into contention.
• EUR/AUD is firmer off lows into the NY crossover, however price printed a fresh monthly low at 1.7248 overnight, keeping focus on 1.7198, the 61.8% retracement of the upleg posted off the February low. A further stabilisation for equities here could see this level come under pressure.
• The data slate is clear Wednesday, leaving more focus on Trump's extended visit to the Middle-East and the central bank speaker schedule - Fed's Waller, Jefferson, Daly and Goolsbee are all set to make appearances, as well as ECB's Villeroy and Holzmann.
• Trump is continuing to talk up relations with Gulf allies, while adding further pressure to Tehran to conclude their commitment to nuclear weapons development in return for closer and freer ties with Western markets. Further negotiations between Tehran and Washington are set for the coming days - progress within which would represent any de-escalation of geopolitical tensions.