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Big day: USTs digest the Fed, Bunds outperform on PMIs, gilts look to the BOE


It has been a busy morning, as markets continue to digest yesterday's FOMC decision, we have seen the release of PMIs across Europe and as we await the BOE MPC decision later today.

  • Treasuries have been under pressure throughout the European morning session, falling through yesterday's lows but remains within the week's trading range. The FOMC meeting saw a more hawkish dot plot than expected and also saw tapering announced at the hawkish end of expectations. The 2s10s curve has re-steepened back to roughly where it was prior to the meeting.
  • PMI data this morning has been disappointing with input price rises, supply shortages and a cooling of demand for earlier in the summer all weighing on the data. Bunds hit their lows of the day around the time of the French release but have since recovered somewhat and are now outperforming Treasuries. Against this backdrop, peripheral spreads have tightened today.
  • Gilts are awaiting the BOE policy decision at midday BST / 7am ET. No new policy is expected with an 8-1 vote to continue with QE until mid-December (rather than end QE early). There is a risk of another member joining Saunders to curtail QE early. The main focus is likely to on the new Chief Economist Huw Pill and whether by joining the MPC, there is now a majority on the Committee who believe that the necessary (but not sufficient) conditions for a hike have been met.
  • TY1 futures are down -0-5 today at 132-26+ with 10y UST yields up 4.1bp at 1.344% and 2y yields up 1.1bp at 0.248%.
  • Bund futures are down -0.41 today at 171.33 with 10y Bund yields up 2.4bp at -0.301% and Schatz yields up 1.0bp at -0.712%.
  • Gilt futures are down -0.24 today at 127.26 with 10y yields up 2.0bp at 0.818% and 2y yields up 1.9bp at 0.295%.

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