German Short End Outperforming, US TBill Sizes Eyed Later

Global core FI is strengthening in European morning trade Tuesday, with noticeable bull steepening in the German curve partially reversing the bear flattening of the past few sessions.

• Bunds are outperforming Gilts and Treasuries, and easily so at the short end, with the UK and US curves relatively flat.
• Although the session got off to a hawkish-leaning start after an unexpected 25bp hike (vs hold) from the RBA overnight, multiple factors pulled back on rates in the European morning.
• Some attention was paid to somewhat dovish headlines on commentary by ECB/DNB's Knot - though most of his comments were typically hawkish.
• Oil prices have fallen, with some risk-off sentiment evident in weaker equities and widening EGB periphery spreads.
• Data have been soft: April German factory orders were on the low side, Eurozone consumer inflation expectations in April reversed March's jump, and EZ April retail sales came in mixed.
• The rest of the session is relatively quiet: ECB's Centeno and Vujcic are the only scheduled speakers (FOMC still in blackout), and there is no US data scheduled.
• In supply, there will be unusually large interest in today's 4-/8-/17-week Tbill announcements at 1100ET given interest in the dynamics of the Treasury refilling its coffers. EU/Estonia/Croatia bond syndication is underway.

Latest levels:

• Sep US 10Y futures (TY) up 8.5/32 at 114-5 (L: 113-24 / H: 114-6.5)
• Sep Bund futures (RX) up 63 ticks at 134.77 (L: 133.82 / H: 134.82)
• Sep Gilt futures (G) up 42 ticks at 96.86 (L: 96.35 / H: 96.87)
• Italy / German 10-Yr spread 2.3bps wider at 178bps