EGBs & Gilts Hold Much Of Early Weakness

EGBs and gilts sit a little above softest levels of the day after a combination of wider macro impulses (Fed chair Powell’s weekend interview & hawkish BoJ sources) and UK matters (corporate expectations re: price rises, ONS adjustments to labour market data and slightly firmer-than-flash final PMIs) providing the obvious sources of early pressure this week.

• ECB & BoE-dated OIS have unwound a little more of the rate cuts priced for ’24 across their respective strips (127bp of ’24 cuts now priced for the ECB, ~85bp for the BoE) but also sit a little off session extremes as core bonds stabilise.
• The burden of supply (via an ongoing EFSF 10-Year syndication and dual-tranche supply from the EU) will also be providing some background pressure.
• Final Eurozone services and composite PMI readings failed to alter the economic narrative, printing in line with the flash estimates.
• Eurozone PPI was near enough in line with expectations.
• Technical support in Bund futures (134.31) has held so far, with the contract registering a low of 134.33 (last 134.45). German cash yields are 4.0-4.5bp higher, with any early flattening pressure unwound.
• Peripheral spreads to 10-Year Bunds are little changed to 1bp tighter on the day.
• Gilts near enough respected early session lows post-domestic PMI data (lows of 98.20 thus far). Although the contract has broken last week’s base it has not tested initial support at the Jan 16 low (98.16), which protects the bear trigger (97.57).
• Cash gilt yields are 4-7bp higher, as the curve bear flattens.
• The U.S. ISM survey, aforementioned European supply, comments from BoE’s Pill & Fedspeak from Goolsbee and Bostic headline from here.