EM CEEMEA CREDIT: Rep of Hungary (REPHUN) : € BMK L7Y and L12Y - FV

Gilt outperformance vs. Bunds stalled around the 165bp level last week, after the spread tightened by ~25bp since November 12.

• The speed of the tightening, coupled with ongoing medium-term UK fiscal fisks, have been cited as limiting factors by some.
• Fresh extension through 165bp would target the September ’24 closing low (162.01bp).
• Meanwhile, gilt bears will want to force the spread back above the November closing low (172.94bp) to start turning the tide back in their favour.
• Note that Goldman Sachs remain constructive on gilts and maintain their long vs. Bunds and long 10-Year swap spread recommendations.
• Goldman write “gilt risk premia continue to compress, with our measure of country risk premia embedded in 10-Year yields 20bp lower since the budget. We think this reflects the outsized risk premia priced in before, as there was relatively little news on the day, but with ongoing uncertainty in upcoming labour market data and into a likely December BoE cut, we expect this to continue. Gilts have been relatively resilient to bearish impulses from other markets, and the potential for dovish spillovers from upcoming U.S. data could reinforce a move lower in UK yields”.

0RF6 98.12/98.00ps 1x2, sold the 1 at -6.5 down to -7.5 in 5k.

• Markets see an unwind off the lows in EGBs and especially in German markets, but not too surprising given Bunds have fallen 176 ticks over the past 6 sessions.
• The heavier volumes are going through in Bobls, although this is composed of a combination of swap related trades and option hedges. Initial resistance in Bunds would be seen further out, up to 128.40.
• Near term risks remain to the downside, meaning market focus will be on yields across core EGB markets.

For the German 10yr Yield, reference 127.93:

• 2.85% = 127.61.
• 2.90% = 127.12.
• 2.94% = 126.73 (2025 high and highest Yield since Oct 2023).