GILTS: Weaker & Steeper Ahead Of Spending Review
Jun-11 09:36
Gilt futures have broken yesterday’s base, trading as low as 92.20.
- Bears look to close yesterday’s opening gap higher (92.00) after bulls forced their way through a cluster of resistance levels on Tuesday.
- The early weakness came as core global FI moved lower, which seemed to be based on a mix of global supply pressure (including a 10-Year gilt auction) and some optimism re: Sino-U.S. trade talks.
- 10-Year supply saw average demand metrics.
- Markets were unmoved by a Chinese statement that failed to reveal any meaningful trade commitments with the U.S.
- Yields 3-6bp higher, bear steepening after yesterday’s labour market data-driven bull steepening.
- 10-Year yields remain above long-term uptrend support drawn off the Dec ’21 lows (4.522% today).
- 30-Year yields closed below long-term uptrend support drawn off their own Dec ’21 lows yesterday (a redrawn support line to account for yesterday’s move comes in at 5.242% today).
- 2s10s nears 65bp, after failing to extend meaningfully below 60bp during breaks in recent sessions.
- 5s30s ~5bp off last week’s multi-week closing low, last ~123bp.
- SONIA futures flat to -3.0. BoE-dated OIS showing 47bp of cuts through year-end vs. closer to 50bp at yesterday’s close.
- Chancellor Reeves will present the spending review from ~12:30 London.
- The release will likely reaffirm the UK’s fiscal fragility (perhaps factoring into this morning’s weakness) and is laden with political risk.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Jun-25 | 4.206 | -0.7 |
Aug-25 | 4.022 | -19.1 |
Sep-25 | 3.965 | -24.7 |
Nov-25 | 3.815 | -39.8 |
Dec-25 | 3.743 | -47.0 |
Feb-26 | 3.640 | -57.2 |
Mar-26 | 3.616 | -59.7 |
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EGBS: German Curve Bear Flattens As US/China Tariff Rollback Supports Risk
May-12 09:33
The German curve has sharply bear flattened this morning, with risk sentiment supported by a temporary reprieve in US/China tariffs following this weekend’s meetings.
- EGBs opened on a soft note after the US touted “substantial progress” with China, and the move extended after the announced tariff cuts exceeded expectations.
- Year-end ECB rate cut expectations now sit at 48bps (vs 60bps at Friday’s close), pushing Schatz yields up 10bps on the session to ~1.90%.
- The German 2s10s curve is down 3.7bps, with 10s30s down 2.8bps at typing.
- Bund futures are -79 ticks at 129.97, trading close to intraday lows. Initial support at 129.92 (Apr 11 low) has held for now. Clearance of this level would expose the Apr 10 low at 129.02.
- The short-end may have also been pressured by ECB Executive Board member Schnabel’s hawkish speech over the weekend. Schnabel provided her arguments for holding rates at current levels. However, she did outline the conditions required for her to support more easing.
- The BTP/Bund spread reached a fresh year-to-date low of 102bps in the immediate aftermath of the US/China tariff reprieve details, but has since widened back to opening levels of around 104bps.
- This week’s Eurozone data calendar is fairly light, with the second estimate of Q1 GDP due on Thursday. This will keep focus on the trade complex, and non-EZ macro data (e.g. US CPI tomorrow).
GERMAN T-BILL AUCTION RESULTS: 12-Month Bubill
May-12 09:32
| Type | 12-month Bubill |
| Maturity | May 13, 2026 |
| Allotted | E2.265bln |
| Previous | E2.4945bln |
| Total sold | E3bln |
| Target | E3bln |
| Avg yield | 1.873% |
| Previous | 1.864% |
| Bid-to-cover | 2.65x |
| Previous | 2.58x |
| Bid-to-offer | 2x |
| Previous | 2.14x |
| Previous date | Apr 14, 2025 |
FOREX: AUDJPY Breaks Trendline from US Election Related Highs
May-12 09:31
- One of the most sensitive currency pairs throughout the tariff war developments has been AUDJPY, and the news today is undoubtedly a significant moment for the pair which continues to be used as a China proxy and good barometer for positive moves for equity markets/risk sentiment. Today’s 1.55% rally has seen a clean break of downtrend resistance, drawn from the election related highs on November 07.
- Session highs today came within 40 pips of the April 02 highs at 95.31. An extension above this point would signal scope for a move back to the year’s highs at 99.17.
- While the EUR has taken a knock on the USD index recovery, EURJPY trades firmer and also keeps bullish conditions intact. The cross is approaching a notable chart point at 164.90. A breach of the 165.00 handle would place EURJPY at its highest level for six months.
