GILTS: Recoveries Sold Into
Recoveries in gilts remain shallow at this stage, with weakness in European peers weighing through much of the London morning, limiting the outright impact of this morning’s weak GDP data.
- A pullback from session highs in oil seemed to factor into the stabilisation, although the bid hasn’t been particularly forceful.
- Futures last -42 at 94.55 vs. lows of 94.49.
- Fresh extension lower would target the November 22 low (93.96).
- Yields 1-2 bp higher on the day, with 10s last 4.38%, 19bp off last week’s low.
- 10s outperform Bunds & U.S. Tsys by 1bp following this morning’s soft GDP data.
- 2s10s still below the October peak, although registered a multi-week high this morning.
- 5s30s pierced the late September high before fading to last trade 1bp flatter on the day at 74bp.
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USD: USDCAD highest since May 2020
- Quick turnaround in the Dollar, paring all the US CPI weakness.
- USDCAD spikes to its highest level since May 2020, and targets a test to 1.4000.
US: GOP Senate Leadership Elections Underway Shortly
Republican Senators will meet shortly to elect their first new leader in 18 years, replacing the outgoing Minority Leader Mitch McConnell (R-KY) – a longtime stalwart of traditional conservativism in the Senate. Senators will hear final pitches from candidates and nominating speeches from colleagues before voting gets underway in a secret ballot. If no candidate receives 27 votes in the first round, the lowest vote-getter will be removed for a second round of voting.
- According to Polymarket, Senate Majority Whip John Thune (R-SD), the most institutionally minded of the three candidates, is slight favourite with a 64% implied probability of winning. Thune will be formally nominated by RNCC Chair Steve Daines (R-MT) - an influential figure since his strategy resulted in a major electoral turnaround from the 2022 midterm elections.
- Senator Rick Scott (R-FL) is second favourite with a 25% implied probability of winning following a surge of support from Trump-aligned conservatives in the media and a recent endorsement from Senator Ted Cruz (R-TX). Although Scott is likely Trump’s favoured candidate, Trump appears unwilling to publicly back Scott without assurances he can win the secret ballot. Scott will be nominated by Senators Marco Rubio (R-FL) and Bill Haggerty (R-TN) – two heavyweights in Trump’s orbit, with the former earmarked for Secretary of State.
- Third candidate, Senator John Cornyn (R-TX) is considered a long-shot, with a 11.5% implied probability of winning.
- Senator John Barrasso (R-WY) is running unopposed for Senate Majority Whip. Senator Tom Cotton (R-AK) is in pole position against Senator Joni Ernst (R-IA) for Conference Chair, the No. 3 Senate Republican.
EURIBOR OPTIONS: Large call spread vs put
ERM5 98.25/98.50cs vs 97.50p, bought the cs for half in 26.9k.
