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China Covid concerns drive FI markets higher

BONDS
  • Core fixed income was on the front-foot through the Asian session and early European trading, but after a substantial rally and repricing of the front-end, Bunds and gilts are off their highs (although Treasuries continue to move higher).
  • The moves have been driven by concerns about wider Chinese lockdowns amid rising Covid-19 cases. With China's zero Covid policies, the bars to further lockdowns (and hence more economic disruption) are much lower than in most European countries or the US. This has the impact of hitting the demand-side, particularly for commodities with oil prices down almost $5/bbl this morning. Given the sensitivity of markets to inflation developments at present, fixed income has seen some decent moves so far today.
  • There is little top tier data other than the German IFO survey (which was better than expected) and with the Fed/BOE meetings next week there are no speakers other than from the ECB - Panetta is due to speak at 18:00BST / 13:00ET.
  • TY1 futures are up 0-24+ today at 119-22+ with 10y UST yields down -8.6bp at 2.816% and 2y yields down -7.8bp at 2.591%.
  • Bund futures are up 0.87 today at 154.12 with 10y Bund yields down -7.0bp at 0.899% and Schatz yields down -3.9bp at 0.237%.
  • Gilt futures are up 0.49 today at 118.51 with 10y yields down -5.7bp at 1.904% and 2y yields down -7.0bp at 1.629%.
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