EGBS: Bunds/Gilts Close To Intraday Lows As Markets Assess Biden Withdrawal

Bund and Gilt futures have retraced opening gains to trade near intraday lows.

• The morning rally was aided by the unexpected PBoC rate cut overnight.
• There hasn’t been an obvious headline/macro driver to explain the reversal, though similar price action in UST futures suggests markets may be reacting to renewed US election uncertainty following Biden’s withdrawal yesterday.
• Bund futures are -11 at 131.99, with bears targeting the first support at 131.65 (50-day EMA)
• Gilt futures underperform Bunds a little, currently -25 at 97.85 but still above the first support at 97.63 (Jul 11 low). Weekend news flow saw Chancellor Reeves hint at an above-inflation pay increase for public sector workers, which has weighed on SONIA and Gilt futures this morning.
• ECB speakers (Makhlouf yesterday and Kazimir this morning) and today’s Q1 Eurozone deficit/debt data were not major market movers. 
• The German and UK cash curves have bear flattened (with Gilts seeing a more pronounced flattening on the above Reeves comments).
• 10-year peripheral spreads to Bunds have tightened, with BTPs outperforming, as European equities partially reverse last week’s selloff.
• Regional macro focus remains on Wednesday’s flash PMI today.