EU FINANCIALS: Legal & General Group PLC: H1 25 Results       

Headline flow remains light as the bid in the USD extends and core global FI markets tick away from session lows.

• Cross-market cues likely remain at the fore.
• The only real news of note that we have seen comes via RTRS sources adding to the speculation that OPEC+ will conduct another similar-sized production increase in the coming months, which has generated some light selling pressure for crude oil.
• This will have allowed bonds to stabilise/bounce from lows.
• Elsewhere, European equity index futures edge away from highs, providing further support for Bunds.

UBS write “as we emerge from another volatile week for gilts, we think it is right to stay long. The adjustment to the welfare spending bill has increased pressure on the public finances. The question for UK rates is now about how that resolves: the potential for more borrowing, more taxes or some degree of better fortune”.

• If a degree of good fortune (lower rates as the inflation outlook improves) is not forthcoming, they think “that the potential for tax rises seems more likely than a change to the fiscal rules to fall back on borrowing that the market has made very clear it will not accept”.
• If so, UBS note that “fiscal drag should make the path to lower front-end rates easier. Lower front-end rates and adherence to the fiscal rules would then support long-term rates”.
• Nearer-term, they highlight “impact on gilt supply from restoring welfare and winter fuel payments is very modest this year and next. The DMO shortening gilt supply should have a far more important market impact”
• Their recommendation for long UK rate positions come via:
• 6m30y receiver ladders
• 30-Year SONIA vs. USD SOFR
• 5y5y/10y20y flatteners
• 2-Year SONIA

ERM6 98.0625/98.1875/98.625/98.75c condor vs 97.75p, bought the condor for 1.5 in 2k.