Core FI Yields Push Higher And Curves Steepen, Peripheral Europe Tightens On Ratings

As we have covered all morning, there hasn’t been much in the way of headline counter to the lack of meaningful escalation in the Israel-Hamas conflict and latest BoJ sources piece.

• That has allowed the Asia-Pac cheapening in core global FI markets to extend.
• 10-Year U.S. Tsy yields have topped 5% for the first time since ’17, with core global FI markets following suit.
• Bund futures move towards last week’s lows, while German cash yields are 2.5-7.5bp higher as the curve steepens. 10-Year yields are still ~5bp off 3%, with (participants seemingly less willing to challenge YtD highs in Bund yields when compared to U.S. Tsys and gilts.
• Peripheral outperformance has been noted, with BTPs and GGBs benefitting from Friday’s well-documented ratings updates (no change in rating/outlook for Italy at S&P and Greece attaining IG status at S&P).
• Gilt futures have registered fresh ’23 lows given the weakness seen elsewhere, with any sustained break below 91.00 set to switch technical focus to the Oct ‘22/LDI crisis lows. Benchmark 20+-Year gilt yields have hit fresh ’23 highs, with wider yields sitting 4-8.5bp higher on the day as the curve steepens. Friday’s rating news did little for gilts (Moody’s outlook tweak to stable from negative represented a removal of a legacy issue from the Truss era).
• Lower tier U.S. and Eurozone data is due as the day wears on, while EU & Belgian supply, along with BoE long end gilt sales, provide points of interest elsewhere.