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Gilts move notably higher post-PMI data; German curve holds after Villeroy

BONDS
  • Gilts are leading the way after a significant repricing of BOE hiking expectations following the fourth largest ever month-to-month fall in the UK composite PMI (and exceeding anything prior to the pandemic). The picture for the labour market is also looking gloomy with companies not fully replacing those who have voluntarily left.
  • The gilt curve has seen a notable bull steepening and has dragged 10-year UST and Bund yields higher.
  • After hitting their highest level since May 5 ahead of the data overnight, 2-year gilt yields are almost 11bp lower on the day now.
  • There was no lasting reaction in bond markets to the Eurozone PMI releases.
  • Also this morning we have heard from ECB's Villeroy who said that 50bp hikes are not the consensus of the ECB but that the repo rate would be back at the neutral rate next year (which he described as between 1-2%). This has helped anchor Schatz and the rest of the German curve somewhat, although yields are still lower on the day after the UK PMI print.
  • Looking ahead we are due to receive the US flash PMI data, Richmond Fed and new home sales as well as a speech from Fed's Powell.
  • TY1 futures are up 0-13 today at 119-31+ with 10y UST yields down -4.7bp at 2.806% and 2y yields down -4.8bp at 2.575%.
  • Bund futures are up 0.20 today at 153.31 with 10y Bund yields down -2.7bp at 0.987% and Schatz yields down -1.2bp at 0.392%.
  • Gilt futures are up 0.78 today at 118.77 with 10y yields down -7.8bp at 1.891% and 2y yields down -10.6bp at 1.449%.
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