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10-Year Gilt/Bund Spread Compresses On UK CPI, TD Securities Issue Tightener Recommendation

BONDS

Compression in 10-Year Gilts vs. Bunds has been notable on the heels of the softer than expected UK CPI data, with the differential tightening by ~15bp to sub-180bp levels based on BBG benchmarks. Note that the 180bp level has not been sustainably printed below breached since May.

  • TD Securities issued a compression trade recommendation in the spread on the heels of this morning’s UK data, with the call coming with the spread at 186bp, targeting a move to 150bp and a stop set at 210bp.
  • TD noted their bias for the BoE to return to a 25bp hiking increment at next month’s meeting, very short Gilt positioning relative to Bunds, net supply dynamics in Gilts, impending fiscal support in China (a Bund negative in their eyes) and their expectations re: the ECB maintaining optionality re: a September hike at next week’s meeting as supportive factors for the trade.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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