TRANSPORTATION: Mobico | Moody's on-review for downgrade

Speaking to the FT, Chancellor of the Exchequer Rachel Reeves says that the trade war launched by US President Donald Trump makes it more "imperative" that the UK improves political and economic relations with the EU. On 19 May, the UK and EU hold a summit intended to 'reset' relations with the EU. Reeves says the summit will offer an opportunity “to refresh our relationship and make it easier for businesses to trade”. 

• Reeves: “Many of the developments, whether it is Russia’s invasion of Ukraine or the challenges in global trade at the moment, mean that there’s an even greater imperative to improve our trading relationships with Europe.”
• While saying that the UK will not rejoin the customs union, the article says that the chancellor "has proposed that Britain should align its regulations covering established industries, such as chemicals, with Brussels rules to enhance market access."
• Reeves says she will look to negotiate further on a trade deal with the US when she visits Washington, D.C., later in April for the IMF meeting of global finance ministers.
• FT says Reeves not drawn on tax hikes/spending cuts in autumn budget. Says "Economic stability, fiscal stability, is the key underpinning for a strong and growing economy, and that’s why we are, as a government, so committed to those fiscal rules.”

Gilt futures trade off lows, generally taking cues from U.S. Tsys in early Wednesday trade. Contract based at 91.08, last 91.20.

• Support at the Mar 28 low (91.03) was untested. That level protects the Mar 27 base & key support (90.55).
• Yields 3bp lower to 13bp higher.
• Twist steepening was initially promoted by dovish BoE repricing & the U.S. Tsy sell off.
• The latest round of USD asset sales has stalled, for now, but it has provided the central talking point today.
• 30-Year gilt yields hit the highest level seen since ’98, before the move away from session highs. The benchmark is still on track to record fresh cycle closing highs, last 5.48%. The next upside level of interest is located at the July 27 ’98 high (5.575%).
• Several curves hit fresh multi-year highs.
• The pricing side of this morning’s 5-Year gilt auction was weak, although the cover ratio was still respectable, printing just under 3.00x.
• Dovish BoE repricing across ’25 meetings has faded, contracts now 2bp more dovish to 1bp more hawkish vs. settlement. 28bp of cuts priced through May, 82bp through December.
• Twist steepening still apparent on the SONIA strip, futures +5.0 to -6.0, with the front end off highs and further out contracts off lows.
• The UK calendar is limited for the rest of the day, so expect cross-market & macro cues to continue to dominate.
• A reminder that BoE’s Breeden will speak at an MNI Connect event on Thursday, covering “UK economic and financial stability prospects."
• The latest BoE FPC meeting minutes showed some concern surrounding trade fragmentation and increased risks to financial markets, but didn’t meaningfully impact markets.

Dovish ECB repricing on the back of Euro area tariff-related growth concerns has dragged short-end EGB yields lower, with the German Schatz yields down 8bps to 1.75%. A Reuters source report pointed to a larger than anticipated growth hit from the tariffs, while Bank of Finland’s Rehn offered explicit support for an April cut. 

• Bund futures have traded in a 137 tick range today, currently +12 ticks at 130.07. Initial resistance is 130.57, the 50.0% retracement of Monday’s high-low range. Support at the 20-day EMA (192.99) was pierced earlier, but the contract has since recovered.
• Estoxx 50 futures are off session lows but remain 2.3% below yesterday’s settlement levels, prompting a widening in 10-year EGB spreads to Bunds. BTPs underperform, with the spread to Bunds 5.5bps wider at 128bps (down from an earlier high of 132bps). The ratchet higher in EUR 3m10y swaption vol is likely factoring in here.
• Portugal sold a combined E1.05bln of the 3.875% Feb-30 OT and the 4.10% Apr-37 OT this morning.
• The EC is set to vote on retaliatory tariffs in response to the US’ 25% steel/aluminium levies today, while a response to the latest reciprocal tariffs will likely be on next week’s agenda.