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BONDS: EGBs-GILTS CASH CLOSE: Bellies Underperform As Cuts Get Priced Out

BONDS
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European yields continued to rise Monday, with Gilts underperforming Bunds as curve bellies underperformed in both the UK and Germany.

  • Multiple factors weighed on global FI, from higher oil prices to follow-through from Friday's surprisingly strong US employment data.
  • Eurozone retail sales were largely in line, while German headline factory orders delivered a downside surprise.
  • ECB's Kazaks told MNI that he supported an October rate cut. While that outcome remains over 90% priced, easing through mid-2025 pared back to ~125bp cumulative from ~130 prior and ~147bp at Thursday's close.
  • Similarly while Nov BoE cut pricing remains >90%, cumulative priced cuts through June 2025 now stand at 94bp, vs ~100bp Friday and over 120bp end-Thursday.
  • Gilt underperformance saw the widest 10Y spread to Bunds in over a year. Gilts appeared to be additionally pressured in the session by soft demand at the long-dated BoE APF sale, as well as media concern over government borrowing prospects.
  • Periphery EGB spreads widened throughout the session on less dovish ECB pricing.
  • Tuesday's agenda includes the German IP release along with multiple ECB speakers including Nagel and Centeno.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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European yields continued to rise Monday, with Gilts underperforming Bunds as curve bellies underperformed in both the UK and Germany.

  • Multiple factors weighed on global FI, from higher oil prices to follow-through from Friday's surprisingly strong US employment data.
  • Eurozone retail sales were largely in line, while German headline factory orders delivered a downside surprise.
  • ECB's Kazaks told MNI that he supported an October rate cut. While that outcome remains over 90% priced, easing through mid-2025 pared back to ~125bp cumulative from ~130 prior and ~147bp at Thursday's close.
  • Similarly while Nov BoE cut pricing remains >90%, cumulative priced cuts through June 2025 now stand at 94bp, vs ~100bp Friday and over 120bp end-Thursday.
  • Gilt underperformance saw the widest 10Y spread to Bunds in over a year. Gilts appeared to be additionally pressured in the session by soft demand at the long-dated BoE APF sale, as well as media concern over government borrowing prospects.
  • Periphery EGB spreads widened throughout the session on less dovish ECB pricing.
  • Tuesday's agenda includes the German IP release along with multiple ECB speakers including Nagel and Centeno.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less