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BONDS: China Stimulus Weighs, Curves Steepen

BONDS
BulletMarketsFixed Income Bullets

The overnight Chinese monetary stimulus package has supported equities and crude oil this morning, weighing on core FI markets. 

  • Bund futures are -22 ticks today at 134.28. First support is 133.92, the Sep 20 low.
  • The German September IFO survey was weaker than expected, but this was telegraphed by yesterday’s soft flash PMIs, so did not move markets.
  • Yesterday’s dovish repricing in EUR STIRs has nonetheless extended, with ECB-dated OIS now showing a ~50% implied probability of cut in October (vs 40% at yesterday’s close).
  • This has insulated the short-end, with German 2-year yields little changed despite impending E4.5bln supply. The German 2s10s curve has steepened 3.8bps to 4.2bps at typing.
  • 10-year peripheral spreads to Bunds are biased tighter alongside the equity strength.

Gilt bears have forced futures through initial support levels (99.06 & 98.92).

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The overnight Chinese monetary stimulus package has supported equities and crude oil this morning, weighing on core FI markets. 

  • Bund futures are -22 ticks today at 134.28. First support is 133.92, the Sep 20 low.
  • The German September IFO survey was weaker than expected, but this was telegraphed by yesterday’s soft flash PMIs, so did not move markets.
  • Yesterday’s dovish repricing in EUR STIRs has nonetheless extended, with ECB-dated OIS now showing a ~50% implied probability of cut in October (vs 40% at yesterday’s close).
  • This has insulated the short-end, with German 2-year yields little changed despite impending E4.5bln supply. The German 2s10s curve has steepened 3.8bps to 4.2bps at typing.
  • 10-year peripheral spreads to Bunds are biased tighter alongside the equity strength.

Gilt bears have forced futures through initial support levels (99.06 & 98.92).

Keep reading...Show less