BONDS: Bunds Fall From Post-PMI Highs

Bund futures have fallen ~30 ticks from intraday highs as markets digest the July flash PMI round, now performing similarly to Gilts.

• The German PMI in particular allowed Bunds to rally to intraday highs at 132.66 (Jul 17 high and first resistance), though indications of continued services inflation persistence helped futures back to current levels at 132.38.
• 10-year Bund supply will have also weighed into the 1030BST bidding deadline.
• Although strong growth signals from the UK PMI weighed on Gilts, a solid 30-year auction helped stabilise futures to the middle of today’s range (currently +10 ticks today at 98.02).
• The German cash curve has bull steepened with yields flat to 3bps lower, while the Gilt curve sees 2/5-year yields slightly lower but the mid/long-end of the curve little changed.
• Continued equity market weakness (spurred by last night’s earnings from Tesla and Alphabet in the US) sees 10-year peripheral spreads to Bunds widen, with the BTP/Bund spread back above 133bps.
• ECB Chief Economist Lane appears on a panel at 1300BST/1400CET, while the BoC decision provides some spillover potential this afternoon (1445BST).