Gilts Lead Way Lower As European Service Price Pressures Linger

Weaker-than-expected European preliminary PMIs have not had a lasting bullish impact on core FI, with Bunds and Gilts weakening in early Tuesday trade.

• UK / German yields are up around 5bp / 1bp respectively in parallel across the curve, while the US curve is twist flattening fairly sharply, with 2Y yields up 4bp and 10-30Y +/-0.5bp.
• The impact of poor manufacturing PMIs appears more than offset by continued strength in activity and prices in Services PMI across this morning's Eurozone and UK readings.
• Gilts have led the way lower, with BoE terminal rate pricing picking up where it left off Monday up 4bp to the highest (5.05% by Nov) since October 2022 - ahead of Wednesday's CPI reading.
• Periphery EGBs have calmed vs Monday's GGB rally, with spreads steady.
• Aside from PMIs and any further debt limit developments, US focus will be on data including New Home Sales and regional Fed activity readings (Philly Fed non-manuf, and Richmond Manuf).
• Later in the session we hear from BoE's Haskel (Bailey is underway as we write), ECB's Villeroy and Nagel, and Dallas Fed's Logan.

Latest levels:

• Jun US 10Y futures (TY) down 2.5/32 at 113-12.5 (L: 113-10.5 / H: 113-17)
• Jun Bund futures (RX) down 21 ticks at 133.77 (L: 133.72 / H: 134.15)
• Jun Gilt futures (G) down 54 ticks at 97.54 (L: 97.44 / H: 97.98)
• Italy / German 10-Yr spread 0.2bps wider at 185.7bps