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Gilts outperform on EU-UK trade deal negativity

BOND SUMMARY
  • Gilts are the clear outperformers today after little progress seemed to be made on the EU-UK trade deal at the dinner between Boris Johnson and Ursula von der Leyen last night. Negotiations will continue until Sunday but optimism that a deal will be reached is fading quickly with gilts rallying and sterling selling off.
  • The other big event of the day will be the ECB policy announcement and press conference. As we note in our ECB preview: "A EUR500bn expansion to the PEPP envelope and extension of net purchases by six-months to end-2021, additional TLTROs and an extension of the most preferential funding rate are the baseline scenario. Further deposit rate cuts are off the cards, but an adjustment to the tiering multiplier is possible".
  • Elsewhere we will also receive US CPI data but there are no other central bank speakers scheduled from the BoE or Fed as both are in their blackout period ahead of next week's monetary policy meetings.
  • TY1 futures are up 0-3+ today at 137-23+ with 10y UST yields down -1.4bp at 0.923% and 2y yields down -0.5bp at 0.146%.
  • Bund futures are up 0.22 today at 178.41 with 10y Bund yields down -1.5bp at -0.621% and Schatz yields down -1.0bp at -0.789%.
  • Gilt futures are up 0.46 today at 135.26 with 10y yields down -4.4bp at 0.216% and 2y yields down -2.7bp at -0.113%.
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