GILTS: Lower & Steeper, Finding A Base After Solid Demand At Auction
Jul-02 09:21
Gilts trade to fresh session lows before finding some support following solid demand and pricing metrics at this morning’s Mar-28 supply.
- Little of note on the news front since the London open, with the presence of this morning’s gilt and EGB supply, alongside fiscal concerns in both the UK & U.S., providing some pressure.
- Futures as low as 92.98, with yesterday’s opening gap higher closed.
- Bulls remain in technical control.
- Initial support at the 20-day EMA (92.78) untouched.
- Initial resistance located at yesterday’s high (93.76).
- Yields 2-4bp higher, curves biased steeper.
- Major curves pare a little of the Tuesday flattening that followed comments from BoE Governor Bailey, after he flagged the potential for a slowing of QT and suggested that related adjustments would be influenced by the recent steepening of the curve.
- SONIA futures lower and steeper given cues from the long end, last down 0.5-5.0 on the day.
- BoE-dated OIS through year-end is little changed, showing ~54bp of cuts through December.
- With only 4 meetings left in the year, further dovish cues, most likely via a further deterioration in the labour market, are probably required to generate a meaningful extension of the recent dovish move.
- Comments from BoE dovish dissenter Taylor due from 11:30 London (more to follow in due course).
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
Aug-25 | 4.006 | -21.1 |
Sep-25 | 3.934 | -28.4 |
Nov-25 | 3.759 | -45.8 |
Dec-25 | 3.674 | -54.3 |
Feb-26 | 3.544 | -67.3 |
Mar-26 | 3.509 | -70.8 |
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EGBS: Bunds Weaken, Curves Steepen On Medium-term Inflation Risks
Jun-02 09:17
- Bund futures have weakened through the course of this morning, currently 39 ticks below Friday’s settlement at 130.82. Initial support is 130.39, the May 29 low. Despite the intraday selloff, a bullish theme remains intact from a technical perspective.
- Markets may be pricing in risks of structurally higher medium-term inflation, seemingly a combination of Trump’s latest tariff threats and higher oil prices following the weekend OPEC+ decision.
- Eurex rolls have been active, with today’s data calendar relatively quiet ahead of risk events later this week.
- The EU will sell up to E6bln of EU-bonds this morning, which may be adding further pressure to core EGB futures in the lead-up to the 1030BST bidding deadline.
- The German curve has bear steepened, with yields 2.5 to 6bps higher. 10-year EGB spreads to Bunds are up to 1bp wider, while EU-bond spreads are 1bp tighter despite the impending supply.
- The Eurozone May manufacturing PMI confirmed flash estimates at 49.4 (vs 49.0 prior), with an upward revision in France offset by a downward revision in Germany. The stronger-than-expected Spanish data was also countered by a slightly softer-than-expected Italian reading.
- This afternoon’s macro focus turns to the US ISM manufacturing reading at 1500BST. A reminder that Eurozone-wide May flash inflation is due tomorrow. There may be downside risks to the 2.0% headline consensus. Thursday's ECB decision (25bp cut to 2.00% expected) headlines this week's regional calendar.
SLOVAKIA AUCTION RESULTS: New 2.50% Jun-29 SlovGB
Jun-02 09:16
| 2.50% Jun-29 SlovGB* | Previous | |
| ISIN | SK4000027397 | SK4000024683 |
| Amount | E817mln | E136mln |
| Avg yield | 2.5000% | 2.2945% |
| Bid-to-cover | 1.56x | 2.20x |
| Avg Price | 100.0000 | 101.8317 |
| Low Price | 100.0000 | 101.8100 |
| Pre-auction mid | 101.936 | |
| Previous date | 19-May-25 |
FOREX: USD Index Bear Trigger Within Range; Next Drivers?
Jun-02 09:14
- Broad dollar weakness Monday has shifted market focus back to the post-election cycle lows for the USD Index at 97.921. A close at today's lows would mark a resumption of the S/T downcycle, narrowing the gap with the bear trigger to just 0.75%. The formation of a bearish engulfing daily candle on Thursday last week adds to the S/T downside focus.
- Today's moves may not only be being driven by the repricing of structurally higher inflation (as covered earlier this morning), but the street consensus for USD is also shifting. This weekend's Morgan Stanley note is garnering plenty of attention - seeing a 9% decline in the USD Index to 91.00 in the next 12 months. This is considerably more bearish than consensus (street looks for ~96.00 at end-Q2'26), but the growing USD net short position suggests these expectations are coming under pressure.
- Derivatives markets often move with a higher beta to spot - so it's a surprise to see a synthetic USD Index risk reversal proving more resilient to the recent sell-off relative to today's price (see below). Should the sell-the-US narrative return in earnest (likely via US equities breaking through the mid-May lows), options positioning could extend lower and provide the needed impetus for the next leg lower in the greenback, compensating for the already-stretched CFTC net position.
