GILTS: Off Lows But Wider Vs. Peers
Apr-11 09:37
Gilt spreads hold wider vs. peers.
- This morning’s firmer-than-expected UK GDP data drove the initial sell off and widening, before the latest round of Chinese retaliatory tariffs on the U.S. provided some outright support (albeit with China signalling a top in tariffs on the U.S.).
- Futures recovered from lows of 90.78 to ~91.20 last, sticking within yesterday’s range.
- Bears remain in control from a technical perspective, initial support and resistance located at Wednesday’s low (89.99) & the 20-day EMA (91.96), respectively.
- Benchmark yields last little changed to 6bp higher, curve steepens.
- Long end yields remain below Wednesday’s highs.
- 2s10s curve below cycle highs, last 78bp, but the likes of 2s30s, 5s30s and 10s30s have all registered fresh cycle highs.
- A reminder that even thinner-than-usual liquidity and forced liquidations were touted as key drivers of Wednesday’s weakness in the long end. Diminished liquidity may be lingering.
- BoE-dated OIS unwinds most of the early hawkish adjustment as gilts recover from lows, pricing 25bp of cuts for May, 36.5bp through June and 88bp through year-end. ’25 meeting contracts are little changed to ~2bp more hawkish on the day.
- SONIA futures +5.5 to -1.0, strip twist flattens.
- We don’t see today’s GDP data as a gamechanger for BoE policy, at least in isolation.
- Expect macro cues to dominate into the weekend.
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ERJ5 97.6875/97.62/97.5625p fly, bought for 0.75 in 14.5k Total.
FOREX: JPY Slippage Stands Out as Equity Bounce Holds
Mar-12 09:32
- JPY slippage is the standout currency move early Wednesday, as equity futures globally smoothly absorb the formal installation of tariffs on aluminium and steel headed to the US. Risk sentiment is seemingly underpinned by hopes for a formal 30-day ceasefire between Ukraine and Russia. While Ukraine have agreed to the terms, Reuters sources this morning report that Russian sources are more wary on the approach - which leaves today's negotiations between Washington and Moscow in focus - particularly after Trump suggested he may talk to Putin as soon as today.
- EUR/USD gains slowed as the leader of Germany's Green party re-stated their opposition to debt brake reform in its current structure - while rejecting the defence spending plan, the door seemingly remains open to negotiations, which have extended across this week, leaving Merz and CDU / SPD officials still hopeful of a last minute deal here.
- The US inflation print and Bank of Canada decision take focus today, with CPI seen moderating to 2.9% from 3.0% for the headline, and down to 3.2% from 3.3% for the ex-food and energy figure. Covering February, the data will be the last look at price pressures in a pre-tariff era, although the sharp run higher for prices paid in sentiment surveys over the past few weeks may mean company stockpiling will still show through in headline stats.
- The Bank of Canada are seen trimming another 25bps off the benchmark policy rate today, and the accompanying policy statement will be carefully watched for any observations on tariff pressure or US-Canada tensions.
GILTS: Off Early Lows, Supply Due Shortly
Mar-12 09:32
Gilts initially showed lower as equities recovered on the back of a slight easing in U.S.-Canada tariff strains but have since recovered from lows.
- Futures based at 91.66 at the open, last ~91.80, with the bearish technical theme intact.
- Friday’s low (91.67) has been pierced, an extension lower would target the March 6 low (90.71).
- Yields essentially flat across the curve.
- 2s10s and 5s30s curves register fresh cycle highs, as the shifting global issuance outlook, increased risk of sticky inflation and reduction in central bank balance sheet size continues to reshape core global curves.
- 5s30s hit 100bp for the first time since June ’21.
- 10-Year gilt/Bund spread 1bp tighter on the day but still above the next support cluster at 175bp/174.5bp after failing to break below earlier this week.
- The DMO will come to market with GBP4bln of the 4.50% Mar-35 gilt shortly. This will be the first reopening of the gilt after the syndicated launch for GBP13bln on 11 February. We wouldn’t rule out a wide tail (particularly given the recent volatility in FI markets) but expect another solid bid-to-cover.
- Earlier this morning, the DMO’s provisional auction calendar for the first 3 weeks of FY25/26 generally met our expectations (see earlier bullets for details).
