EUROZONE T-BILL ISSUANCE: W/C 12 May

RXK5 132/133 call spread, bought for 25 in 12k

• 30-year gilt yields hit their highest levels since 1998 today and 2s30s steepened around 65bp between President Trump announcing tariffs and their peak today (albeit at the time of writing 2s30s was around 12bp off of its intraday extreme).
• These moves are more extreme than those seen in Germany or the US and this brings the inevitable question of whether the Bank of England will look to provide liquidity to the market or pause QT.
• We think we are still some way away from this.
• First, despite the moves having been larger in gilts than in Bunds or USTs, we still had a 30-year gilt auction yesterday that was well received. This will have given the BOE comfort (and indeed gilt futures rallied around 25 ticks on the results publication).
• Second, the Bank of England notes that the LDI crisis in 2022 was not a solvency issue, or even an excessive LDI leverage issue. There was an issue with the segmentation between the balance sheet of the LDI and the pension fund - and the Bank notes that these balance sheets are now better integrated.
• There are also a number of tools available to provide liquidity in times of crisis - they are more likely to be used than the BOE stepping into the market and outright purchasing gilts.
• On the subject of pausing QT, we see little reason for this at least until the September decision. In the short term, there are only two more operations this quarter (one of which is for long-dated gilts next Monday which will be an interesting litmus test for the market). And then there is large passive rolloff in June - but that is some time away and market conditions could look very different in eight weeks time!
• The bar is very high for the BOE to change the current APF sales schedule based on their previous communications. The pace from October (to be determined at the September meeting) is very uncertain at this stage, however.

United States Trade Representative Greer has stated, in testimony to the House Ways and Means Committee, that President Donald Trump is “open to negotiate with countries that actually want to pursue reciprocal trade.” LIVESTREAM

• Greer notes that he spoke with counterparts from the EU, Canada, and Mexico yesterday. Says there is an “opportunity” for countries to “bring down their tariffs.”
• Greer adds later: "The President has directed that we're negotiating with willing partners, and that's where I get my guidance from."
• Greer notes, "there are no exceptions or exclusions" to the tariff programme, suggesting that the Trump administration sees bilateral trade deals as the primary route to tariff relief.  
• Greer says he has had frequent meetings and conversations with his UK counterparts on "how to move the economic relationship forward". He says that he has expressed his concerns with UK barriers to US agricultural imports, noting that is “very important to us.”
• The hearing is ongoing and could last around four hours, if yesterday’s corresponding Senate hearing is a guide.