Core FI Pulls Back As Euro Supply Weighs

Global core bonds have pulled back early Wednesday, with cash yields mostly higher and curves mixed.

• Some modest bear flattening has been seen in the US and UK curves, with Germany's twist flattening. Treasury and Bund futures have descended from overnight levels, with Gilts reversing after a sharp rally in early trade. But all three contracts are trading well within Tuesday's ranges so far.
• Periphery EGB spreads continue to drift wider, with BTPs underperforming.
• With little in the way of data or speakers catalysing the moves, and assets trading mixed (oil has regained ground, with equities lower, and the USD flat/mixed), the common denominator in bond weakness has been heavy supply in Europe (both corporate and sovereign, the latter including Spain 10Y syndication).
• This morning's Oct-25 Gilt auction appeared well-absorbed, with Bobl auction held shortly.
• In data, German industrial production was weak (but more than offset by higher revisions), while Italy retail sales were slightly soft but basically in line.
• Another slow US data docket includes April's trade balance, with pre-FOMC blackout meaning no Fed speakers.

Latest levels:

• Sep US 10Y futures (TY) up 3/32 at 113-28 (L: 113-26 / H: 114-2.5)
• Sep Bund futures (RX) up 10 ticks at 134.2 (L: 134.07 / H: 134.67)
• Sep Gilt futures (G) up 9 ticks at 96.61 (L: 96.51 / H: 96.87)
• Italy / German 10-Yr spread 1.3bps wider at 179.7bps