MIDEAST: STC Ldr Confirms Transition Period & Indy Ref For Southern Yemen

• It appears that the latest strength in GBP is helping lead the USD lower more broadly. We noted earlier today the significance of the 50-day EMA in EURGBP at 0.8755, which has now given way. Cross is now on course for a close below the late November lows and the lowest level since October 28th.
• Follow-through sales in the USD are pressuring USDJPY at the margins, with the move gathering pace despite the pick-up off lows in the e-mini S&P. 154.67 marks interim support ahead of 154.42 and stronger support of 153.62-64, which marks both the 23.6% retracement of the YTD rally as well as the Nov14 low.

• US TSY 17W AUCTION: NON-COMP BIDS $561 MLN FROM $69.000 BLN TOTAL

A pullback in Tsys spills over to gilts before fading in more recent trade. UK yields remain little changed to 5bp lower on the day, with the long end outperforming.

• Futures have filled Monday’s opening gap lower, with bulls remaining in technical control. Contract trades as high as 91.76.
• Initial support and resistance in the contract remain located at 90.87 & 91.93, respectively.
• Outperformance vs. Bunds develops further, with the 10-Year yield spread set to close below 170bp for the first time this year. Gilt bulls now eye the September ’24 closing low (~162bp).
• Long end outperformance vs. swaps noted and detailed earlier, with the 30-Year spread set to close above -75bp for the first time this year. Bulls now target the resistance cluster at -70b, -69.96bp and -69.71bp.
• While medium-term fiscal risks remain evident (with a particular focus on the backloaded nature of the fiscal tightening outlined in the Budget) the market has welcomed the (questionable) increase in fiscal headroom and ongoing WAM reduction in issuance, promoting swap spread widening. It seems that a fresh gilt-negative catalyst is a pre-requisite for any fresh spread narrowing at this point e.g. slower-than-envisaged UK growth, political unrest or fresh questions surrounding the UK fiscal outlook.