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Continued divergence between Europe and the US

BONDS
  • A mixed morning session for EGBs and Bund, on quite low liquidity.
  • Bund initially tested resistance at 136.17, printed a 136.20 high, but has reversed gains with UK Gilt leading to the downside.
  • Gilt falls to session low, helping Bund lower.
  • Technical outlook remains bearish for the UK contract, and a clear break through the figure, will open to initial support at 100.68 Low Dec 20.
  • Peripheral spread in Europe are mostly a touch tighter besides Spain, that trades 1.4bp wider against the German 10yr.
  • For the US, there's continued divergence between Treasuries and EGBs, as investors favour more aggressive hikes by the ECB vs the Fed.
  • Most notable move is in the Tnote/Bund spread, which is trading at its tightest level since October 2020.
  • Support is seen at the 13/10/20 low, at 128.28bps, for the Tnote/Bund spread.
  • Looking ahead, US, GDP and Core PCE will be 3rd readings.
  • For supply, US sells $19bn of 5yr TIPS reopening later today.
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