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EGB/Gilt Rally Loses Steam

BONDS

The morning rally in EGBs and Gilts lost steam over the last few hours, with fundamental catalysts lacking, and insufficient to provide enough impetus to test Friday's highs.

  • The bounceback in Brent futures from intraday lows will have pressured to the space, while looming CPI data from the UK and US tomorrow remain at the forefront of participant's minds.
  • Bunds are now +10 at 133.40 and Gilts are +22 at 97.72. Volumes in both contracts remain light.
  • The Gilt curve remains in a bull steepening formation, with the short-end leading in spite of today's BoE short APF sales.
  • 5-year tenors outperform amongst the German and French cash curves, with German yields flat to -2bps lower and French yields -1.5 to 3bps lower today.
  • Periphery spreads have continued to compress as European equities extend higher. The 10-year BTP/Bund spread is now -3.9bps tighter at 154.5bps today.
  • Both the Euribor and SONIA strips remain firmer through the blues vs Friday's settlement levels.
  • ECB-dated OIS contracts trade broadly in line with this morning, with 118bps of easing priced through 2024. BoE implied rates have lowered slightly through the day, with BoE-dated OIS pricing 77bps of cuts through 2024 (vs 74bps this morning).
  • A reminder that BoE Governor Bailey speaks at 1800GMT, for which text will be released.

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