Bunds & Gilts Back From Highs, BoE Decision Eyed

Final Eurozone & UK manufacturing PMIs did little to alter the narratives provided by the flash readings, despite modest marks higher.

• EGBs & gilts were already away from highs ahead of the data.
• Recent rallies initially extended after Fed Chair Powell opened the door to a September rate cut, but March 10-Year yield lows were not tested in Gilts and Bunds.
• German yields are 0.5-1.5bp lower across the curve, light bull steepening.
• 10-Year EGB/Bund spreads are wider.
• French & Spanish supply was digested smoothly, clearing above pre-auction pricing after some modest concession into supply.
• Gilt yields are 2-4bp lower across the curve, also seeing light bull steepening.
• The market is pricing a little over 50% odds of a cut at today’s BoE decision.
• Our full BoE preview can be found here.
• Most participants are split between the idea of a dovish hold or a hawkish cut.
• As such, a dovish cut probably presents the greatest viable risk to the market (outside of any knee jerk initial moves).
• Post-decision comments from BoE’s Bailey and Pill will be eyed, while U.S. data (weekly jobless claims, ULC and ISM manufacturing) provides further post-BoE decision risk.