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EGB/Gilt: Trading Lower

BOND SUMMARY

European government bonds have sold off this morning alongside gains for equities, marking a reversal from yesterday's risk-off theme.

  • Gilts initially opened higher but have sold off through the morning. Cash yields are now 5-7bp higher on the day.
  • It is a similar story for bunds where yields are now up 6-11bp.
  • OAT yields have pushed up 3-8bp with the belly of the curve leading the way.
  • The BTP curve has bear flattened with the 2s30s spread narrowing 6bp.
  • German trade data for June surprised to the upside on the back of stronger than expected export receipts (4.5% M/M vs 1.0% expected). Elsewhere, final euro area PMI estimate for July were better than the initial readings.
  • OPEC+ members will meet today to discuss production volumes. While Western countries have urged an increase in supply to combat spiraling inflation, the consensus seems to expect that output will remain steady,
  • Global political tensions continue to simmer in the background following US House Speaker Nancy Pelosi's visit to Taiwan. Pelosi has now left Taiwan, but not before stating "our delegation came to Taiwan to make unequivocally clear that we will not abandon Taiwan” and “now, more than ever, America’s solidarity with Taiwan is crucial, and that’s the message we are bringing here, today". In response, China is due to hold live fire military drills near Taiwan from Thursday.
  • Supply this morning came from Germany (Bund, EUR1.232bn), Greece (GTBs, EUR625mn) and the Eurozone (Bills, EUR3.0bn).
  • Focus later today shifts to US factory orders and durable goods.
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