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EGBs-GILTS CASH CLOSE: Weak PMIs Give ECB Something To Ponder

BONDS

European FI closed Monday stronger though off the best levels seen earlier in the session after weaker-than-expected European PMIs.

  • Bunds held on to most of their early gains triggered after flash July French PMIs provided the initial indication that overall Eurozone PMIs would miss expectations to the downside, with manufacturing heading even deeper into contraction and the services sector starting to fade quickly. UK PMIs proved poor as well.
  • Coming ahead of Thursday's ECB decision and communications, the data delivered a signal of slowing price pressures alongside weaker demand.
  • The German short end/belly held gains with yields down almost 5bp on the day. Gilts underperformed, with the early rally fading over the course of the session amid China stimulus speculation and a mixed US PMI reading.
  • An early widening in periphery EGB spreads - after the weekend's Spanish election delivered a hung parliament - faded over the course of the session.
  • The early highlight of Tuesday's schedule is German IFO.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 4.8bps at 3.045%, 5-Yr is down 4.8bps at 2.506%, 10-Yr is down 4.4bps at 2.425%, and 30-Yr is down 1.2bps at 2.476%.
  • UK: The 2-Yr yield is down 1.7bps at 4.938%, 5-Yr is down 2.8bps at 4.343%, 10-Yr is down 2.4bps at 4.256%, and 30-Yr is down 0.8bps at 4.421%.
  • Italian BTP spread down 0.9bps at 160bps / Spanish up 0.4bps at 101.3bps
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