BONDS: Twist Steepening Theme Following U.S. Fiscal Fear & EZ PMIs
May-22 09:41
Curve steepening pressure remains evident after tepid demand at yesterday’s 20-Year U.S. Tsy auction, which came against a backdrop of increased U.S. fiscal worry.
- Weakness in crude in markets, generated by a report pointing to the potential for a larger-than-envisaged OPEC+ production increase, allowed bonds to edge away from worst levels.
- Softer-than-expected Eurozone services PMI data has also factored into the recovery, although that was accompanied by slightly firmer-than-expected IFO expectations data out of Germany.
- Bund futures based at 129.49, with bears unable to force the contract towards key short-term support at the May 15 low (129.13).
- German yields are 4bp lower to 1bp higher.
- German 5s/30s hit the steepest level since June 2019.
- The downtick in equities (largely stemming from higher yields and U.S. fiscal risks), as well as the presence of SPGB & OAT supply, provided some modest EGB spread widening pressure early today, before smooth passage of the auctions. Spreads last little changed to 0.5bp wider on the day.
- Gilts also twist steepen, with yields 3bp lower to 3bp higher at typing. 2-Year yields respect short-term downtrend support, while the longer term-uptrend in 10s has reasserted itself.
- Gilt futures off lows of 90.29, key support at 89.99 unchallenged.
- No reaction to local PMI data (soft manufacturing, in line services)
- A raft of ECB & BoE speak is due today, although cross-market/macro cues and U.S. data should provide more interest.
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SLOVAKIA AUCTION RESULTS: SlovGBs
Apr-22 09:39
| Coupon | 3.00% | 3.75% | 3.75% | 2.00% |
| Maturity | Feb-28 | Mar-34 | Feb-35 | Oct-47 |
| Instrument | SlovGB | SlovGB | SlovGB | SlovGB |
| ISIN | SK4000024683 | SK4000024865 | SK4000022539 | SK4120013400 |
| Amount | E77mln | E242mln | E255mln | E61mln |
| Previous | E136mln | E82mln | E231mln | E322mln |
| Avg yield | 2.082% | 3.382% | 3.437% | 4.002% |
| Previous | 2.424% | 3.569% | 3.668% | 3.931% |
| Bid-to-cover | 2.78x | 3.06x | 2.38x | 1.82x |
| Previous | 2.17x | 3.62x | 2.04x | 2.13x |
| Avg Price | 102.461 | 102.768 | 102.568 | 70.668 |
| Low Price | 102.400 | 102.716 | 102.450 | 70.400 |
| Pre-auction mid | 102.360 | 102.584 | 102.448 | 71.199 |
| Prev avg price | 101.628 | 101.363 | 100.668 | 71.380 |
| Prev low price | 101.550 | 101.320 | 100.566 | 71.266 |
| Prev mid-price | 101.515 | 101.134 | 100.460 | 71.036 |
| Previous date | 17-Feb-25 | 17-Mar-25 | 17-Mar-25 | 17-Feb-25 |
GILTS: Steepening Develops Further, 5s30s Pierce Cycle Closing Highs
Apr-22 09:37
Gilts twist steepen, with cues from Tsys driving much of the price action. U.S. policy uncertainty continues to dominate newswires.
- Futures 92.20 last (91.96-40 range).
- Initial support and resistance unchanged at 91.73/92.63.
- Yields 3bp lower to 6bp higher, curve twist steepens.
- Long end yields still 20-30bp off April closing highs.
- 2s10s ~9bp below closing cycle highs, last 69.7bp.
- 5s30s testing cycle closing highs, last 135.7bp. If we break higher, there is little resistance to note until 150bp.
- Risks seem titled towards continued steepening given the UK’s economic and fiscal fragility, while the macro environment adds further weight to that view.
- BoE-dated OIS shows 89bp of cuts through year-end after briefly printing ~91bp this morning.
- BoE MPC member Greene didn't use any of the recent MPC buzzwords ("careful", "cautious" or "gradual") when describing her forward-looking view in an interview with BBG TV, perhaps signalling a move away from her traditional position at the hawkish end of the MPC spectrum. Markets looked through this given the recent dovish repricing.
- Post-holiday adjustments and macro cues are set to remain at the fore today.
- Wednesday will see Brightmine wage data, PMIs and public finance data cross. The DMO will provide an updated DMO remit revision in the wake of the latter. We will provide greater colour on this later today.
- BoE-speak from Bailey, Pill & Breeden is also scheduled for Wednesday.
EUR: Trade-Weighted Exchange Rate At Fresh Record Highs
Apr-22 09:35
- Adding to earlier comments on EURUSD, US President Trump’s continued attempt to weigh-in on Fed decisions helped see the euro step to fresh record highs in nominal trade-weighted terms yesterday (using Citi’s daily series).
- It’s someway off past highs in real terms, with lower historical inflation than many of its trading partners, yet is still trading at its 99th percentile over both five- or ten-year rolling periods that we often look at – see table.
- Interestingly though, whilst it’s unsurprisingly the most stretched DM currency vs these historical ranges, GBP, CHF and SEK (just) see a more elevated REER relative to its five-year average. GBP leads on this alternative approach, sitting 6.2% and 7.5% higher than five- and ten-year averages vs 3.9% and 4.7% for the euro.
- Back on EURUSD specifically, you can see the clear disconnect between fundamental driver such as rate differentials and relative terms of trade, with this new safe haven factor likely at play since Trump's Apr 2 “Liberation Day” tariff announcements.
