Bunds & Gilts Off Best Levels, Data, Central Bank Speak & Supply To Digest

Core global FI markets have pulled away from Asia-Pac bests.

• German factory orders were touted as an early driver, although the breakdown of the release showed that some of the more volatile/one-off components provided the impetus for the comfortable upside surprise.
• Elsewhere, the burden of EGB supply provided some headwinds, before the recent syndication updates/auction results pointed to another round of solid to strong demand, upholding the early ’24 theme, which has lessened the market impact of the brisk pace of EGB issuance since the turn of the year.
• Predictably dovish rhetoric from Bank of Spain Governor de Cos and a mixed round of readings in the ECB’s latest consumer inflation expectations survey provided some modest support, which quickly faded.
• Bund futures sit +2 on the day, at recently registered session lows, while German cash yields are 0.5-1.0bp higher with a light bear steepening bias.
• 10-Year EGB spreads are little changed to a 2bp tighter vs. Bunds.
• Gilt futures are +39, sitting in the middle of their early 26-tick range. Cash gilt yields are 0.5-2.0bp lower, with the front end outperforming.
• The space has had to digest late Monday comments from BoE’s Pill, which were less hawkish than his Friday offerings, firmer-than-expected BRC like-for-like sales data which still registered the lowest Y/Y level seen since ’22 and the latest round of long-dated green gilt supply (which was easily digested/well received).
• ’24 cuts priced into ECB & BoE-dated OIS see some very modest divergence, with the former showing ~125bp (2bp less cuts vs. close) & the latter showing ~85bp of cuts ~1bp more than close.
• Looking ahead, supply considerations on both sides of the pond and Fedspeak provide the highlights from here.