Bulk Of Early London Cheapening Holds As Bearish Momentum Extends

The early cheapening in EGBs and gilts largely holds after an extension of the bearish momentum dominated core global FI markets during Asia-Pac and early European trade.

• Technical breaks, a reiteration of the Fed’s higher for longer narrative and data revealing Chinese shedding of U.S. Tsys (albeit in August) were cited as contributary factors across several desks.
• U.S. Tsy yields have registered fresh cycle highs across the curve.
• That leaves Bund futures -20 or so, with the next technical support level a handful of ticks below session lows at 127.21. German cash benchmarks run 1.5-2.5bp cheaper.
• BTPs remain under widening pressure, with the well-documented Italian fiscal issues and the recent source reports/ECB comms playing down the need for imminent TPI deployment adding extra layers of weakness beyond the outright core global FI sell off. The proximity to a run of Italian sovereign credit rating reviews, given the aforementioned fiscal issues, will also be factoring in. 10-Year BTP yields sit above 5% as a result.
• Continued EGB supply is also providing some background pressure for the broader space.
• Gilt futures have cleared initial technical support leaving bears to focus on the Oct ’22 lows. The contract last prints -50, while cash gilt yields are flat to 5bp higher, with 10s seeing the most weakness. BoE pricing is now off hawkish session extremes, with the OIS strip twist steepening.