GILTS: Recovery Still Deemed Corrective In Nature

Latest block trade lodged at 09:18:32 London/05:18:32 NY:

• SFRU6 96.75/96.875/96.9375 call fly 2.5K lots blocked at 2.25, CME points to a buyer of the wings.

Crude ticks lower in recent trade, allowing core global FI and equity indices to recover further from session lows and applying light some pressure to the broader USD. No overt headline flow to drive the move.

• Our best guess is that the break back below $100 in WTI futures triggered fresh selling pressure for oil.
• The moves have started to stall a little.

There’s been a broad reversal in cross asset markets over the past hour, with oil and gas benchmarks pulling away from earlier highs. 

• Bund futures have rebounded from session lows, and are attempting to close the opening gap. RXM6 is currently -13 ticks at 126.80, up from an overnight low of 125.94. Volumes are once again extremely heavy, with almost 700k lots having traded so far today. Key support in Bund futures at 125.90 (Dec 22 low) remains unchallenged for now. A break of this level would strengthen a bearish theme and pave the way for a continuation lower, despite the short-term trend being in an extreme oversold position.
• The German curve has bear flattened, with Schatz yields up 8bps to 2.39%. Yields reached a high of 2.47% this morning, with ECB implied rates seeing a sharp hawkish repricing earlier.
• Flattening in the swap spread/ASW curve seemingly represents a continued unwind of crowded exposure related to the Dutch pension fund transition. Spreads and outright yield levels are off intraday extremes.
• BTPs and GGBs once again underperform in the EGB space, with 10-year spreads to Bunds each around 4-5bps wider on the session. Spread widening remains a function of weak risk sentiment, hawkish front-end repricing  and higher EUR rates vol.
• Data has taken the backseat, but German factory order and industrial production readings for January did come in on the weak side.