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BONDS: Core FI Rallies Amid Little Headline Flow; Oil and Equities Supporting

BONDS

Core FI futures have rallied sharply over the past ~60 minutes, with TY futures now back at last Friday’s highest levels and Bund/Gilt futures also breaking out of the week’s ranges.

  • There was no initial headline trigger for the move higher in USTs, but flow driven buying got a further tailwind from the renewed pullback in oil prices (after the Libyan Central Bank Governor hinted at an agreement to return domestic supply back to the market) and weakness amongst US tech names at the equity open.
  • There have been more limited moves at the short-end though, with cash curve having bull flattened and year-end rate cut pricing across the Fed/ECB/BOE not seeing major repricing (Year-end Fed pricing still eyes ~98bps of easing, inline with last week's levels).
  • Gilts outperform Bunds and USTs, with the removal of syndication-related hedging pressure potentially helping there.
  • Broader focus turns to the US S&P and ISM manufacturing surveys at 1445/1500BST.

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