BONDS: U.S./German 10-Year Yield Spread At Lowest Level Since ‘23
Sep-12 07:32
The U.S./German 10-Year yield spread extends its recent tightening move.
- The combination of yesterday’s ECB decision and U.S. CPI data pushed the differential through double bottom support drawn off this year’s prior lows, with the spread now challenging the 135bp level.
- The next level of meaningful downside interest comes in at the July 19 ’23 closing low (131.2bp).
- The seemingly impending restart of the Fed’s cutting cycle and potential end to the ECB’s own cutting cycle will provide downside focus from the monetary policy angle, while fiscal risks remain evident on both sides of the pond.
Fig. 1: U.S./German 10-Year Yield Spread
Source: MNI - Market News/Bloomberg Finance L.P.
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EUROPEAN INFLATION: Spain Final July HICP Confirms Flash, Airfares Push Up Core
Aug-13 07:32
Spanish final July HICP confirmed flash estimates at 2.70% Y/Y (vs 2.27% prior), while the monthly reading was revised up a rounded tenth to -0.3% (-0.34% unrounded, vs -0.4% flash). Excluding energy and unprocessed foods, HICP accelerated a touch to 2.34% Y/Y (vs 2.22% prior).
- As indicated in the flash release, there was a rise in electricity inflation (17.30% Y/Y vs 9.00% prior) which pulled the energy component higher in July. Energy HICP was 2.97% Y/Y (vs -0.77% prior).
- Elsewhere, services inflation ticked up to 3.63% Y/Y (vs 3.42% prior). This was mostly driven by a rise in airfares (international flights inflation was 13.61% Y/Y vs 3.46% prior), and to a lesser extent medical services, recreation and culture and accommodation inflation.
- Non-energy industrial goods pressures remain subdued, easing to 0.15% Y/Y (vs 0.29% prior).
- Unprocessed foods fell to 7.76% Y/Y (vs 8.45% prior), but remain elevated. Processed foods, alcohol and tobacco ticked up to 1.32% Y/Y (vs 1.20% prior).
- The proportion of HICP subcomponents with annual inflation rates above 5% rose to 18%from 15% in June, the highest since March 2024.
BUNDS: Full reversal in the German 30yr Yield
Aug-13 07:24
- Long end Germany Buxl lead the bounce to keep moving away from Yesterday's low.
- The German 5/30s printed a 98.28 high on the Cash Open, but now seeing some flattening bias, falling towards 96.00.
- That part of the Curve was trading around 94.57, when the 30yr Yield printed a 14yr High.
- The 30yr Yield is fading back to the July high it broke Yesterday, Buxl futures was trading around 115.38.
(Chart source: MNI/Bloomberg Finance LLP).
GILTS: Firmer Start
Aug-13 07:19
Gilts follow peers higher at the open, with oil a little off overnight lows.
- Futures as high as 91.95.
- Bears have countered recent bullish technical developments.
- They look to yesterday’s low (91.51) as their first target, which protects the Aug 1 low (91.44) and July 18 low/bear trigger (91.08).
- Conversely, bulls need to close yesterday’s opening gap lower (~92.25) before switching focus higher.
- Yields 2-3bp lower across the curve, modest flattening noted.
- 2s10s and 5s30s remain above 70bp and 140bp respectively, after yesterday’s steepening resulted in closes above. Intraday ’25 highs on both curves (84.6bp & 147.2bp) remain unchallenged.
- Fiscal issues continue to dominate local headlines. Guardian sources have reported that “the Treasury is looking at ways to raise more money from inheritance tax amid growing pressure on the country’s finances ahead of the autumn budget”.
- Curve steepening risks remain intact, albeit with crowded positioning and a more activist approach from policymakers when it comes to managing spikes higher in long end yields posing risks to that idea.
