Gilts Underperforming With Manufacturing Surveys In Focus

Global core FI has pulled back in European morning trade Tuesday, with manufacturing surveys the main focus.

• Gilts are underperforming with weakness concentrated in the short-end/belly (cash 2s through 5s yields +2-3bp) with potential factors including a weak-ish Oct-25 auction and modest upward revision to UK July flash manuf PMI.
• German and US yields are little changed (no more than 1bp across the curve) with mild twist steepening. Periphery EGB spreads are a little wider against a modestly risk-off backdrop (with equities slipping).
• Soft China Caixin PMI and the RBA's decision to hold benefited global FI overnight, with European data plentiful but relatively lacking in impact.
• Neither mixed Spain (weaker than expected) and Italian manufacturing (above expected) PMIs nor strong-on-balance Eurozone labour market data moved the needle, though a French upward revision to the flash reading helped bring Bunds down to session lows.
• Overall though volumes have been light and more attention is on events later in the week including the Bank of England decision and US nonfarm payrolls.
• Highlights of the US schedule include final PMI, ISM Manufacturing, JOLTS, and construction spending. Chicago's Goolsbee is the only scheduled Fed speaker (and we heard from him yesterday already).

Latest levels:

• Sep US 10Y futures (TY) down 1.5/32 at 111-11.5 (L: 111-09 / H: 111-16)
• Sep Bund futures (RX) down 21 ticks at 132.79 (L: 132.64 / H: 133.06)
• Sep Gilt futures (G) down 34 ticks at 95.79 (L: 95.68 / H: 96.18)
• Italy / German 10-Yr spread 1.7bps wider at 162.7bps