BONDS: Off Lows, Early London Bear Steepening Intact On Middle East & Fed
Jun-19 09:24
{EU}{GB} BONDS: Core global FI markets off lows, with the rally in crude oil stalling and EGB supply digested smoothly.
- ECB speak has generally reaffirmed the Bank’s data-dependent approach, with GC member Villeroy indicating the potential for a rate cut further down the line.
- FI markets were subjected to some selling pressure in early London trade, as European participants reacted to yesterday’s FOMC decision and ongoing tension in the Middle East.
- Bund futures last -29 at 130.87 vs. lows of 130.73.
- The contract continues to trade below the Jun 13 high. Key short-term support to watch lies at 130.12.
- German yields 2-3bp higher, curve steeper. 2s10s and 5s30s stick within recent ranges.
- EGB spreads to Bunds little changed to wider (SPGBs flat, OATs +1bp, BTPs +1.5bp, GGBs +2bp) with equities lower.
- Gilt futures -30 at 92.76 vs. lows of 92.56.
- Initial support and resistance located at the 20-day EMA (92.25) & a Fibonacci level (93.13), respectively.
- Yields 1.5-4.0bp higher, curve steeper. Multi-week ranges in benchmark yields and major curves intact.
- BoE-dated OIS little changed on the day, essentially showing 0 odds of a move today, 19bp cuts through August, 24bp through September, 39bp through November and 47bp through year-end.
- We continue to lean towards a cut in August, risks to market pricing may be skewed a little dovishly given the recent evolution of data.
- Our full decision preview can be found here.
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GILT SYNDICATION: 5.375% Jan-56 gilt: Final terms
May-20 09:21
- Size: GBP4.0bln (smaller than MNI expected - that's the average size in the DMO's funding plan with no upsizing)
- Books closed in excess of GBP74bln pre-rec (inc JLM interest of GBP3.75bln)
- Spread set: 4.25% Dec-55 gilt (GB00BT7J0241) + 1.75bp (guidance was 1.75bp/2.25bp)
- ISIN: GB00BT7J0241
- JLMs: BNP Paribas, BofA Securities, Deutsche Bank, Goldman Sachs International Bank (B&D / DM) and Santander
- Settlement: 21 May 2025 (T+1)
- Maturity: 31 January 2056
- Coupon: 5.375%. Short first
- Timing: Allocations to follow
From market source / MNI colour
BOE: Pill: Concerned re structural change to inf persistence; weighs up risks
May-20 09:11
- "I think I am signed up to the view that the UK labour market is easing. It may have moved to being not in a tight state, but an easy state, and that has implications for the outlook for pay dynamics and inflation and so forth."
- "What I think is kind of important, though, coming out of the exercise I described is that, you know, it's not just thinking that real income persistence can lead to stronger wage growth, and that may explain why wage growth has been stronger in the past for a given state of the labour market. That model would suggest a number of things. For example... if there is stronger real income persistence, it suggests that the appropriate, optimal stance for monetary policy should imply different responsiveness of bank rate to inflation."
- "What's perhaps also important to see is that... if it is permanent, it will imply different levels for the starred variables"
- "We entertain the possibility that there's more inflation persistence, because within this work, and this is one of the beauties of having a framework that is internally that is internally consistent, the increase in inflation persistence will tend to raise that error right? n other words, you need to run the economy a little bit cooler in order to take account of the fact that the intrinsic dynamic in inflation is just stronger than it used to be. That's an uncomfortable message"
- "There's an alternative interpretation, which says the world in the UK is structurally exactly like it's been for the entirety of the inflation process."
- "Our forecast and our forecast framework basically assumes that. And so what I'm kind of trying to argue here is, is that in doing the risk assessment around that forecast and that risk assessment is, I think, key for understanding what the policy decision should be."
- "I still worry about it. That's why I voted the way I did at the May meeting"
EQUITIES: EU Bank Put Spread
May-20 09:07
SX7E (20th June) 200/185ps 1x2, bought for 2 in 6k.
