STIR: Weak Demand For UKTBs This Week, Repo Incentives Likely At Play
Oct-31 11:31
We wouldn’t usually bring up weekly UK t-bill results, but it’s worth noting that the bid-to-cover ratios at this week’s sale were the lowest since April 2022 for the 1- and 6-months, and August 2021 for the 3-month.
- This likely reflects a temporarily increased attractiveness of lending in repo markets (i.e. RONIA) versus investing in t-bills, related to recent large TFSME repayments (GBP22.8ln this week).
- Despite the softer bid-to-cover ratios, the average accepted yields across lines are still broadly in line with last week’s levels.
- We will follow-up with more details on RONIA, TFSME and reserve balances in due course.
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OUTLOOK: Price Signal Summary - Bear Threat In Gilts Still Present
Oct-01 11:27
- In the FI space, Bund futures continue to trade above their recent lows. Short-term gains appear corrective. Key support and the bear trigger lies at 127.61, the Sep 3 low. Clearance of this level would cancel a recent bullish theme and confirm a continuation of the medium-term bear cycle. For bulls, a clear reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is 128.84, 61.8% of the Sep 10 - 25 bear leg.
- Gilt futures remain above their latest lows. The move down last week strengthens a bearish theme and does suggest the end of the recent corrective phase between Sep 3 - 11. Note that on the continuation chart, moving average studies are in a bear-mode position, highlighting a dominant downtrend. A resumption of weakness would open 89.94, the 76.4% retracement of the Sep 3 - 11 corrective phase. Initial resistance to watch is 91.28, the Sep 24 high.
BONDS: Tsy/Bund Spread Off Lows, BofA See Value In EUR Duration
Oct-01 11:26
The 10-Year Tsy/Bund spread has rallied by ~10bp from September’s closing lows, last ~143bp.
- That comes after a sell off from the post-Liberation Day closing high of ~196bp.
- Bank of America believe that the break down in the Tsy/Bund correlation seen during the move “cannot be explained by relative breakeven or asset swap spread moves”.
- They go on to write “given the intense focus on German fiscal developments, term premium is considered by many investors as the driving force of EUR rate underperformance. However, term premium has corrected lower since May and more so in Germany than the U.S.”.
- They argue that “instead, the driving force of the relative rate underperformance is the repricing of the ECB”.
- As such, Bank of America see “a value proposition in EUR duration, not least since the ECB has to acknowledge the risk of asymmetry in the outlook”.
Fig. 1: 10-Year U.S. Tsy/Bund Spread
Source: MNI - Market News/Bloomberg Finance L.P.
LOOK AHEAD: Wednesday Data Calendar: ADP, ISMs, Tsy Bill, Fed Speak
Oct-01 11:21
Private sector data still released while Census Bureau's Construction Spending suspended until government reopens.
- US Data/Speaker Calendar (prior, estimate)
- 10/01 0700 MBA Mortgage Applications reported -12.7% from 0.6% prior
- 10/01 0815 ADP Employment Change (54k, 51k)
- 10/01 0945 S&P Global US Manufacturing PMI (52.0, 52.0)
- 10/01 1000 ISM Mfg (48.7, 49.0), Prices Paid (63.7, 62.7)
- 10/01 1000 ISM New Orders (51.4, 50.0), Employment (43.8, 44.3)
- 10/01 1130 US Tsy 17W bill auction
- 10/01 1215 Richmond Fed Barkin moderated discussion on economy (text)
- 10/01 1700 Chicago Fed Goolsbee radio interview Marketplace
- 10/01 ---- Wards Total Vehicle Sales
- Source: Bloomberg Finance L.P. / MNI
