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BONDS: EGBs-GILTS CASH CLOSE: Gilts Clear Underperformer On Fiscal Plans

BONDS
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  • Gilts have been a clear underperformer today, with 10Y yields rising 3.6bps vs mostly 3.8-4.7bp declines across EGBs owing to idiosyncratic fiscal factors around Chancellor Reeves’ rule amendments.
  • See here,here and here plus initial analysis here about how the news outweighed dovish comments from the BoE’s Bailey.
  • EGBs meanwhile have been supported by a sharp rolling over in oil futures and equities also fading.
  • In data, the German PMIs were stronger than consensus but the underlying details were still weak, keeping focus on tomorrow's IFO survey. The French PMI was weaker than expected, while the rest of the Eurozone once again outperformed the region's two largest economies.
  • It meant the Eurozone services PMI was slightly softer than expected at 51.2 (cons 51.5) after 51.4 vs a stronger but a still depressed manufacturing PMI of 45.9 (cons 45.1) after 45.0, netting out for little change for the composite PMI. 

  • In latest ECBspeak, Lane noted that backward-looking components are still playing out but the disinflation process is well on track with inflation set to return to target in the course of 2025. Muller isn’t worried about falling behind the curve and sees the best policy choice being measures rate cuts. 

    Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

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  • Gilts have been a clear underperformer today, with 10Y yields rising 3.6bps vs mostly 3.8-4.7bp declines across EGBs owing to idiosyncratic fiscal factors around Chancellor Reeves’ rule amendments.
  • See here,here and here plus initial analysis here about how the news outweighed dovish comments from the BoE’s Bailey.
  • EGBs meanwhile have been supported by a sharp rolling over in oil futures and equities also fading.
  • In data, the German PMIs were stronger than consensus but the underlying details were still weak, keeping focus on tomorrow's IFO survey. The French PMI was weaker than expected, while the rest of the Eurozone once again outperformed the region's two largest economies.
  • It meant the Eurozone services PMI was slightly softer than expected at 51.2 (cons 51.5) after 51.4 vs a stronger but a still depressed manufacturing PMI of 45.9 (cons 45.1) after 45.0, netting out for little change for the composite PMI. 

  • In latest ECBspeak, Lane noted that backward-looking components are still playing out but the disinflation process is well on track with inflation set to return to target in the course of 2025. Muller isn’t worried about falling behind the curve and sees the best policy choice being measures rate cuts. 

    Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

Keep reading...Show less