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BONDS: EGBs Firm As Oil Softens & German Vote Eyed, Gilts Little Changed

BONDS
BulletMarketsFixed Income Bullets

Increased odds of an expedited German election process and weakness in crude oil futures drives a rally in EGBs this morning, although there has been a pullback.

  • Risks to the implementation of the ruling German government’s supplementary Budget also factor into the rally.
  • Bund futures +20 at 132.28 vs. highs of 132.61.
  • Initial resistance now comes in at 132.73, with Friday’s high broken & the 20-day EMA pierced.
  • Yields 2.5-3.5bp lower across the curve, bull flattening.
  • Bund vs. 3-month Euribor ASW printed at ~1.2bp before fading towards 0bp. Sell-side names still cautious on the idea of long swap spread trades.
  • EGBs generally outperform Bunds by 0.5-1.0bp, aided by the bid in European equities and modest dovish move in ECB pricing.
  • No meaningful outperformance for SPGBs after Fitch moved Spain’s outlook to positive late on Friday, with the medium-term positive fiscal trajectory well-defined, albeit with increased spending surrounding the recent floods noted.
  • Gilts lag Bunds.
  • Futures traded as high as 94.43 before fading back to 94.00. Last -4 at 94.14.
  • UK yields little changed.
  • 10s ~3bp wider vs. Bunds, spread back out to ~210bp after last week’s late move away from fresh cycle wides. Truss mini-Budget wides still in focus (227.6bp).
  • BoE-dated OIS and SONIA futures little changed vs. late Friday levels.
  • Little of note on the macro calendar today, with the U.S. and areas of Europe observing a public holiday.
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Increased odds of an expedited German election process and weakness in crude oil futures drives a rally in EGBs this morning, although there has been a pullback.

  • Risks to the implementation of the ruling German government’s supplementary Budget also factor into the rally.
  • Bund futures +20 at 132.28 vs. highs of 132.61.
  • Initial resistance now comes in at 132.73, with Friday’s high broken & the 20-day EMA pierced.
  • Yields 2.5-3.5bp lower across the curve, bull flattening.
  • Bund vs. 3-month Euribor ASW printed at ~1.2bp before fading towards 0bp. Sell-side names still cautious on the idea of long swap spread trades.
  • EGBs generally outperform Bunds by 0.5-1.0bp, aided by the bid in European equities and modest dovish move in ECB pricing.
  • No meaningful outperformance for SPGBs after Fitch moved Spain’s outlook to positive late on Friday, with the medium-term positive fiscal trajectory well-defined, albeit with increased spending surrounding the recent floods noted.
  • Gilts lag Bunds.
  • Futures traded as high as 94.43 before fading back to 94.00. Last -4 at 94.14.
  • UK yields little changed.
  • 10s ~3bp wider vs. Bunds, spread back out to ~210bp after last week’s late move away from fresh cycle wides. Truss mini-Budget wides still in focus (227.6bp).
  • BoE-dated OIS and SONIA futures little changed vs. late Friday levels.
  • Little of note on the macro calendar today, with the U.S. and areas of Europe observing a public holiday.