Burden Of Supply Helps Apply Pressure, Gilts Outperform On Cooling Labour Market Data

A poorly received Japanese 20-Year auction and the latest ACGB long end syndication provided pressure in Asia-Pac hours.

• The burden of a heavy European & UK sovereign supply slate also helps keep any rallies in check.
• Signs of continued cooling in partial UK labour market data provided some counter as gilts opened, while a block buy in TY futures (+2.5K/~157K DV01) also lent short-term support.
• Core global FI metrics generally trade closer to session lows than session highs.
• Tsy yields sit 1.0-4.5bp cheaper, bear steepening. TY futures are through last week’s lows, leaving bears focused on the month-to-date base from a technical perspective.
• The German curve bear flattens, with benchmarks running 0.5-2.0bp cheaper. Firmer than expected German ZEW data provided some fresh headwinds in recent trade. Bund futures last -20.
• EGB spreads are generally little changed to a touch wider vs. Bunds. PGBs the exception, a touch tighter at 10-Year point.
• Gilts twist steepen, with the previously flagged domestic labour market data providing some insulation from the wider core global FI sell off as BoE pricing moves in a dovish manner (markets still price greater than 50/50 odds of one further BoE hike in the coming months, just). Cash benchmarks last show 2.5bp richer to 0.5bp cheaper, while futures are +5. Long end gilt supply saw mixed metrics. Initial rhetoric from BoE’s Dhingra was typically dovish.