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BONDS: EGBs-GILTS CASH CLOSE: German Short End Rallies Again

BONDS
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The core EGB short-end rally continued Tuesday, with 2Y German yields seeing the lowest close since Dec 2022 on deepening central bank easing prospects.

  • EGBs and Gilts weakened in early trade, weighed down by news overnight that China was enacting economic stimulus measures.
  • Another soft German data point in September IFO failed to have much of a positive bond impact.
  • But global core FI rallied in the European afternoon, with a weak US consumer confidence reading boosting Treasuries, and Bunds/Gilts on the follow.
  • ECB October rate cut expectations continue to ratchet up amid the poor survey data this week: now priced at 60% implied of 25bp, vs 40% at Monday's close (post-PMIs) and 20% to start the week. BoE Nov cut pricing (last up 1bp at 30bp, or 25bp + 20% of a 50bp cut) deepened less dramatically.
  • Bunds outperformed Gilts, with the German curve bull steepening. The UK curve bear steepened modestly.
  • Periphery EGB spreads tightened, with a broader risk-on move keyed by the China stimulus.
  • Wednesday's docket includes an appearance by BoE's Greene, French consumer confidence, Spanish PPI, and the Riksbank decision (MNI preview here).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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The core EGB short-end rally continued Tuesday, with 2Y German yields seeing the lowest close since Dec 2022 on deepening central bank easing prospects.

  • EGBs and Gilts weakened in early trade, weighed down by news overnight that China was enacting economic stimulus measures.
  • Another soft German data point in September IFO failed to have much of a positive bond impact.
  • But global core FI rallied in the European afternoon, with a weak US consumer confidence reading boosting Treasuries, and Bunds/Gilts on the follow.
  • ECB October rate cut expectations continue to ratchet up amid the poor survey data this week: now priced at 60% implied of 25bp, vs 40% at Monday's close (post-PMIs) and 20% to start the week. BoE Nov cut pricing (last up 1bp at 30bp, or 25bp + 20% of a 50bp cut) deepened less dramatically.
  • Bunds outperformed Gilts, with the German curve bull steepening. The UK curve bear steepened modestly.
  • Periphery EGB spreads tightened, with a broader risk-on move keyed by the China stimulus.
  • Wednesday's docket includes an appearance by BoE's Greene, French consumer confidence, Spanish PPI, and the Riksbank decision (MNI preview here).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less