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EGB/Gilt: Evergrande Deal Sets Stage For Risk Recovery

BOND SUMMARY

European sovereign bonds are broadly weaker while equities edge higher ahead of today's FOMC meeting.

  • An agreement between Evergrande and its bondholders over interest payments on a domestic bond have soothed fears of imminent default and contagion to international markets.
  • The gilt curve has bear steepened with the 2s30s spread widening by 2bp.
  • Bunds are a touch weaker with the curve 1bp steeper.
  • It is a similar story for OATs, which trade in line with bunds.
  • BTPs have firmed and trade marginally above yesterday's closing levels.
  • Supply this morning came from the UK (Gilt linker, GBP350mn), Germany (Bund, EUR1.862bn) and the EU (Bills, EUR3.993bn). Portugal also organised an OT exchange selling EUR279mn of the 2.125% Oct-28 OT and EUR235mn of the 2.25% Apr-34 OT to buy EUR330mn of the 2.20% Oct-22 OT and EUR184mn of the 5.65% Feb-24 OT.
  • US President Joe Biden appears to have dashed UK hopes of a swift bilateral trade deal.

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