GILTS: Yields Hold Higher As Initial Risk-Off Reverses
Jun-13 09:38
Gilts hold lower on the day after the rally seen at the open quickly faded.
- Our best guess is that the lack of meaningful Iranian response to the Israeli attack on its nuclear and military facilities (including the killing of high-ranking officials), as well as the fact that the market was already aware of non-negligible risks of such an attack, has driven the pullback.
- Oil is also off Asia highs, given the lack of damage to Iranian oil infrastructure.
- Futures traded as high as 93.68 before fading back to ~93.00.
- The May 8 high (from a continuation chart) has been pierced, with the recent bullish phase extending. Initial support and resistance now located at 92.80 & 93.73.
- Yields 2.0-3.5bp higher, curve bear flattens.
- The recent rally has seen 20- & 30-Year yields pierce their May lows.
- Local data releases have included another gloomy round of labour market data (REC report on Jobs) and the latest BoE/Ipsos inflation expectations survey. For the latter, the MPC will be relieved that consumer inflation expectations did not pick up further but will remain wary that the 12-24 month and 5-year ahead expectations remain so high.
- BoE-dated OIS back to pricing ~50bp of cuts after printing 52-53bp late yesterday.
- Tensions in the Middle East and the U.S. UoM survey will provide inputs from further afield.
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PORTUGAL AUCTION RESULTS: OT Results
May-14 09:37
| 1.65% Jul-32 OT | 4.10% Feb-45 OT | |
| ISIN | PTOTEYOE0031 | PTOTEBOE0020 |
| Amount | E548mln | E702mln |
| Previous | E485mln | E432mln |
| Avg yield | 2.72% | 3.75% |
| Previous | 3.38% | 3.30% |
| Bid-to-cover | 1.97x | 1.92x |
| Previous | 2.51x | 2.16x |
| Avg Price | 93.14 | 104.77 |
| Pre-auction mid | 93.035 | 104.332 |
| Prev avg price | 86.95 | 111.60 |
| Prev mid-price | 86.749 | 111.130 |
| Previous date | 13-Sep-23 | 13-Nov-24 |
GERMAN AUCTION RESULTS: 1.25% Aug-48 Bund / 2.50% Aug-54 Bund
May-14 09:35
| 1.25% Aug-48 Bund | 2.50% Aug-54 Bund | |
| ISIN | DE0001102432 | DE000BU2D004 |
| Total sold | E1.5bln | E1bln |
| Allotted | E1.313bln | E818mln |
| Previous | E806mln | E1.189bln |
| Avg yield | 3.09% | 3.12% |
| Previous | 2.89% | 2.70% |
| Bid-to-offer | 3.68x | 1.85x |
| Previous | 1.13x | 1.95x |
| Bid-to-cover | 4.20x | 2.27x |
| Previous | 1.40x | 2.46x |
| Avg Price | 69.86 | 88.21 |
| Low Price | 69.85 | 88.18 |
| Pre-auction mid | 69.810 | 88.127 |
| Prev avg price | 71.15 | 95.87 |
| Prev low price | 71.12 | 95.84 |
| Prev mid-price | 71.139 | 95.761 |
| Previous date | 11-Oct-23 | 12-Feb-25 |
GILTS: Support In Futures Pierced Before Recovery
May-14 09:32
Gilts have recovered from session lows, after being pressured by concession ahead of this morning’s 10-Year auction.
- Gilts based just ahead of the bidding deadline, with the auction generating solid demand metrics, despite the LAP printing comfortably below the pre-auction mids.
- Futures breached their April 15 low (91.43), basing at 91.39 before a recovery to 91.50.
- Yields effectively flat on the day across the curve.
- 2s continue to trade sub-4.00% after yesterday’s brief and limited break above.
- 10-Year yields have pierced the April 15 high (4.672%) during the past couple of sessions but haven’t meaningfully extended beyond that point.
- BoE-dated OIS little changed on the day, showing 47bp of cuts through year-end, with the next cut fully discounted through the end of the September MPC.
- SONIA futures little changed to 3.0 lower, terminal BoE pricing (proxied by SFIU6) sits at ~3.60%, 30bp above recent dovish extremes.
- Hawkish BoE dissenter Mann didn’t move markets as she outlined the reasoning behind her latest vote, while Deputy Governor Breeden didn’t touch on monetary policy.
- Macro and cross-market cues are eyed from here, with little of note on the UK calendar until tomorrow’s preliminary Q1 GDP data.
