GILTS: Off Lows, Curve Bull Steepens After CPI
Jun-18 09:28
Gilts stick to narrow ranges, fading any weakness that initially stemmed from the CPI data (slightly firmer-than-expected headline Y/Y, slightly softer than-expected services).
- We have suggested that the BoE is likely to view today’s data as in line with expectations, therefore it should have little net feedthrough into tomorrow’s BoE decision.
- Our full preview of the BoE decision is available here.
- Gilt futures stick within yesterday’s range, trading as low as 92.48 before recovering to ~92.65.
- The bullish technical conditions in the contract remain intact, initial support and resistance located at 92.23 and 93.13, respectively.
- Yields 0.5-2bp lower, curve bull steepens.
- Multi-week ranges in yields and on major curves intact.
- GBP STIRs see similar moves to the long end and trade little changed on the day.
- BoE-dated OIS pricing ~48bp of cuts through year-end, with the next 25bp step more or less fully discounted through the September MPC.
- SONIA futures -0.5 to +2.0.
- Terminal rate pricing, proxied by SFIU6 at present, sits at 3.48% after touching 3.415% last week.
- We still lean towards an August cut.
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EGBS: UST Spillover and Heavy Issuance Weighs On Major EGB Futures
May-19 09:23
Spillover from US Treasuries and a heavy morning of corporate/sovereign supply has weighed on major EGB futures, with Bunds down 61 ticks at 129.81. Key support remains at 129.13, the May 15 low.
- Reaction to Moody’s US sovereign rating downgrade late Friday has set the tone across global markets. with USD FX and rates under notable pressure.
- In Europe, today’s new 7-year E3bln WNG EFSF syndication comes alongside auctions from Slovakia and the EU (1030BST), as well as several corporate deals.
- The German 5s30s curve is up 2bps on the sesion to ~90bps, seeing a more modest intraday steepening than UST counterparts (+4.2bps to 89bps).
- 10-year EGB spreads to Bunds have generally widened, with the US downgrade dampening global equity sentiment. The BTP/Bund spread has widened 1.5bps to 102bps, after hovering around the psychological 100bp handle through last week.
- Rounded Eurozone HICP headline / core inflation was unrevised in the final April release at 2.2% Y/Y and 2.7% Y/ respectively. Services inflation was upwardly revised by 5 hundredths to 3.98% Y/Y (highest since August 2024), bringing the rounded rate to 4.0%.
- The European Commission has significantly downgraded its Euro Area's growth and inflation outlook due to the weaker global trade environment as well as the continuing uncertainty surrounding US tariff policy.
SLOVAKIA AUCTION RESULTS: SlovGBs
May-19 09:19
| Coupon | 3.00% | 3.00% | 3.625% | 3.75% |
| Maturity | Feb-28 | Nov-31 | Jun-33 | Feb-35 |
| Instrument | SlovGB | SlovGB | SlovGB | SlovGB |
| ISIN | SK4000024683 | SK4000026241 | SK4000023230 | SK4000022539 |
| Amount | E136mln | E146mln | E204mln | E121mln |
| Previous | E77mln | E2bln | E114mln | E255mln |
| Avg yield | 2.295% | 2.990% | 3.322% | 3.474% |
| Previous | 2.082% | 3.040% | 3.407% | 3.437% |
| Bid-to-cover | 2.20x | 2.67x | 2.44x | 3.64x |
| Previous | 2.78x | 2.30x | 2.38x | |
| Avg Price | 101.832 | 100.046 | 102.108 | 102.237 |
| Low Price | 101.810 | 99.977 | 102.013 | 102.220 |
| Pre-auction mid | 101.936 | 99.928 | 102.063 | 101.953 |
| Prev avg price | 102.461 | 99.751 | 101.529 | 102.568 |
| Prev low price | 102.400 | 101.460 | 102.450 | |
| Prev mid-price | 102.360 | 101.384 | 102.448 | |
| Previous date | 22-Apr-25 | 29-Oct-24 | 17-Mar-25 | 22-Apr-25 |
EUROPEAN INFLATION: EZ Services Inflation Upwardly Revised in April Final Data
May-19 09:10
Rounded Eurozone HICP headline / core inflation was unrevised in the final April release. On an unrounded basis, headline came in at 2.17% (2.16% flash) after 2.18% in March. Core meanwhile was 2.75% (2.72% flash, 2.43% in March). In terms of contributions vs March, services adding 0.24pp was broadly outweighed by energy taking away 0.25p, while FAT and NEIG contributions were broadly unchanged.
- Services inflation was upwardly revised by 5 hundredths to 3.98% Y/Y (highest since August 2024), bringing the rounded rate to 4.0% - the highest since December 2024 (3.93% flash, 3.45% March). Despite the material April uptick (even the 3.93% flash reading was above all analyst estimates), general consensus is for services inflation to tick down again in the months to come.
- Recall that seasonally adjusted sequential services inflation accelerated in flash March data to 0.67%, the highest since the 0.91% seen in September 2022 and pushed 3m/3m services inflation momentum to an 8-month high of 4.08% (vs 3.31% prior) as it somewhat looks to repeat last year's pattern amidst both Easter Effects and residual seasonality concerns. We'll update latest trends here when the ECB updates its seasonal data later today.
- Other categories meanwhile looked mixed:
- Energy was downwardly revised to -3.56% (-3.47% flash, -0.98% March).
- Food, alcohol & tobacco (FAT) was little changed at 2.97% (3.00% flash, 2.93% March).
- Non-energy industrial goods (NEIG) came in at 0.57% (0.58% flash, 0.62% March).
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