EGBS: Topside in Bunds Futures Capped By Equity/Commodity Rally
Jul-09 09:43
Bund futures have traded in a relatively contained 35 tick range this morning, with topside seemingly limited by this morning’s rally in European equities and crude oil/gas futures. Bunds are +6 ticks at 129.70, with yesterday’s high at 130.10 untested.
- Markets have mostly looked through yesterday evenings tariff headlines. Although US President Trump’s threat of a 200% pharma tariff would have significant ramifications for the likes of Ireland, Italy and Germany if implemented, the market impact is dampened by (i) Trump’s history of pulling back from his most extreme threats and (ii) yesterday’s comments already suggesting there would be a 1/1.5-year phase in period.
- EGB curves have steepened through July, which has partly been spillover from moves in long-end JGB/Gilt yields. Today’s price action has seen these trends unwind slightly though, with curves lightly bull flattening.
- German yields are up to 1bp lower, despite today’s 15/20-year Bund supply. The Bund results were mixed, with the May-41 line seeing softer cover ratios than the previous outing and the July-44 line seeing stronger demand.
- 10-year EGB spreads to Bunds are within 1bp of yesterday’s closing levels. Portugal also sold OTs this morning.
- Very light regional data calendar today, leaving focus on ECB speakers (Lane, de Guindos, Nagel).
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GILTS: Early Rally Fades A Little, Curve Flatter
Jun-09 09:34
Gilts are off session highs after looking to Tsys and Bunds for cues for much of the morning.
- Futures trade as high as 92.17 before easing back to ~92.00, sticking within Friday’s range.
- The contract still trades closer to recent highs. The latest rally undermines the bearish theme. Key short-term resistance at 91.87, the May 20 high, has been cleared. This signals scope for an extension higher and sights are on 92.79, a Fibonacci projection. Initial firm support has been defined at 91.44, the Jun 4 low.
- Yields 0.5-2.0bp, curve flatter.
- 2s10s ~61bp, recent breaks below 60bp haven’t been sustained.
- 5s30s ~117bp, after forcing the first sub-120bp closes since early April last week.
- GBP STIRs still trade around levels flagged pre-gilt open, showing ~40bp of cuts through December.
- UK headline flow remains limited ahead of tomorrow’s labour market report and Wednesday’s spending review.
- A reminder that the BoE has shifted its focus to survey-based labour market inferences given the ongoing issues with the ONS data.
- Meanwhile, the spending review contains plenty of political hurdles for PM Starmer & Chancellor Reeves to navigate (as we have already detailed in earlier bullets and our Global Week Ahead).
- Expect our deeper previews of both events in due course.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.218 | +0.6 |
Aug-25 | 4.062 | -15.0 |
Sep-25 | 4.021 | -19.1 |
Nov-25 | 3.879 | -33.3 |
Dec-25 | 3.817 | -39.5 |
Feb-26 | 3.725 | -48.7 |
Mar-26 | 3.705 | -50.7 |
EGBS: Early Rally In Futures Loses Steam; 2021 Low In BTP/Bund Holds For Now
Jun-09 09:33
The early rally in major EGB futures has lost steam, with Bunds and BTPs piercing but not clearing initial resistance levels. The move away from lows for crude oil prices may have also added pressure to FI markets.
- Headline flow has been light, with the Whit Monday holiday also limiting activity to some extent. The EGB supply calendar is empty for today.
- BTP futures led the early rally, with continued interest in tightening the 10-year BTP/Bund spread. Futures reached a session high of 121.37 earlier (above last Thursday’s 121.32 high), but have since eased back to 121.16, still +53 ticks today. The 10-year BTP/Bund spread has found a short-term base around the 2021 low (~90.4bps).
- Bund futures are +47 ticks at 130.84, unable to push through the 131.00 level (130.99 high). German yields are 3.5-5.0bps lower, with the belly outperforming.
- Japanese investors sold JPY1.48trln (~around E9bln) of German bonds in April, according to balance of payments data released overnight. Net sales were the most since March 2014.
- Limited reaction in the 10-year RAGB/Bund spread (38bps) after Fitch downgraded Austria’s rating to AA- (Outlook Stable) on Friday. Austrian fiscal fragilities are already well-documented.
- ECB’s Kazimir noted that ECB rates are in neutral territory, with the bank “almost at the end of the cycle of reducing key interest rates, if not already at the end of it.”
- The remainder of today’s macro calendar is light, with focus on news around the US/China trade talks in London.
BTP: Large short 2yr Basis trade
Jun-09 09:25
Large 2yr Short BTP Basis trade, suggest Cash seller:
- BTSU5 8.25k at 107.98.
