BONDS: Off Lows, Bear Steepening Holds
Aug-01 09:33
EGBs recover from session lows, with weakness in equities (albeit initially aided by higher yields) and a downtick in crude oil providing some background support.
- No clear fresh fundamental driver for the initial weakness in core global FI, with cues from the U.S., digestion of the U.S. tariff announcements and the impending NFP release front and centre for participants.
- Initial support in Bund futures (129.19) is intact, German yields flat to 2bp higher, curve steeper.
- EGB spreads to Bunds flat to 3bp wider, peripherals & OATs see the most meaningful 10-Year spread moves.
- EUR 3m10y vol. is little changed to a touch higher today after the 60bp level held. Note that the measure registered the lowest level seen since February ’22. The trend lower has provided background support for EGB spread tightening vs. Bunds for some time, albeit with this morning’s weakness in equities seemingly spilling over into a modest uptick in the measure/light EGB spread widening.
- Elsewhere, there has been ongoing demand for the ERH6 98.31/98.43 call spread vs. the ERH6 97.93/97.81 put spread, with turnover in that strategy taking volume to ~50K of new risk on the week.
- No meaningful impact from slightly firmer-than-expected Eurozone HICP.
- The removal of yesterday’s month-end support and cues from wider core global FI markets has resulted in ~3bp of gilt widening vs. Bunds.
- Gilt futures stick to the range witnessed so far this week, last -50 at 91.66.
- Yields 2.5-5.5bp higher, 10s still trade in the middle of the range in play since early Feb.
- BoE-dated OIS showing ~45bp of cuts through year-end.
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GERMAN AUCTION RESULTS: New 2.60% Aug-35 Bund
Jul-02 09:32
| 2.60% Aug-35 Bund* | Previous | |
| ISIN | DE000BU2Z056 | DE000BU2Z049 |
| Total sold | E6bln | E3bln |
| Allotted | E4.557bln | E2.336bln |
| Avg yield | 2.63% | 2.54% |
| Bid-to-offer | 1.24x | 2.09x |
| Bid-to-cover | 1.63x | 2.69x |
| Avg Price | 99.77 | 99.63 |
| Low Price | 99.76 | 99.63 |
| Pre-auction mid | 99.597 | |
| Previous date | 11-Jun-25 |
ECB: Wunsch Re-iterates That Risks To Rates To the Downside
Jul-02 09:31
Comments from ECB Wunsch via Reuters: "Euro zone inflation is at risk of falling short of the ECB's target and there is a case for the bank to provide a mildly supportive policy stance, Belgian central bank Governor Pierre Wunsch said on Wednesday".
- "The ECB has cut rates by two full percentage points since last June, and its 2% deposit rate provides a so-called "neutral" setting, which neither slows nor stimulates economic growth".
- "However, the growth outlook was muted and inflation could be pulled down by a host of factors, suggesting that neutral may not be enough, Wunsch argued."
Note that Wunsch told CNBC yesterday that if the ECB had to move rates again, "it would be down".
ITALY AUCTION RESULTS: Buyback Results
Jul-02 09:24
The MEF has bought back E5bln of the following BTP//CCTeus:
- E1.25bln of the 3.80% Apr-26 BTP at 101.334.
- E1.00bln of the 1.60% Jun-26 BTP at 99.696.
- E0.89bln of the 3.10% Aug-26 BTP Short Term at 101.188.
- E0.62bln of the 1.25% Dec-26 BTP at 99.074.
- E1.24bln of the 0.50% Apr-26 CCTeu at 100.437.
