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Full steam ahead for the reflation trade

BOND SUMMARY

The reflation trade has continued this morning. Imputing the yield-equivalent for 10-year Treasuries from futures, we would be close to the March highs in yield. 10-year gilt yields have hit their highest levels since the March pre-QE spike but 10-year Bund yields are only just approaching their September highs. These moves have been accompanied by a significant steepening of curves.

  • The outperformance of Bunds may reflect the slower pace of vaccination in the Eurozone relative to the UK and US. However, peripheral spreads continue to tighten with BTP-Bund 10-year spreads falling below 90bps, but Greece and Cyprus being seeing the biggest moves today.
  • The Eurogroup meeting is the highlight of the day with the ECB's Lagarde and Panetta both in attendance.
  • TY1 futures are down -0-13 today at 136-04+. Treasury cash futures are closed today.
  • Bund futures are down -0.77 today at 175.20 with 10y Bund yields up 4.7bp at -0.382% and Schatz yields up 1.0bp at -0.703%.
  • Gilt futures are down -0.74 today at 131.19 with 10y yields up 6.8bp at 0.584% and 2y yields up 0.4bp at -0.40%.
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