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Leaning Bull Flatter Amid US Debt Ceiling Uncertainty

BONDS

Global core FI is on the front foot in early Wednesday trade, with attention on the US debt limit impasse.

  • The US, UK, and German curves are leaning slightly bull flatter, with risk appetite limited.
  • That's despite some apparently constructive debt limit developments overnight, including Pres Biden's plan to shorten his trip to Asia in order to refocus on negotiations.
  • The US short end is underperforming, with Fed hike pricing ticking up slightly (vs lower pricing for ECB/BoE) amid lingering doubts that the hiking cycle is over.
  • Eurozone data hasn't really had an impact; final Apr HICP saw a downward revision to M/M, while French unemployment was in line. US housing starts and building permits data feature later.
  • This morning's supply has included a strong Gilt auction and a decent French OAT sale. Supply later includes $15B 20Y US Tsy Bonds.
  • BoE Governor Bailey, and ECB's Centeno/Guindos/Rehn are up later.

Latest levels:

  • Jun US 10Y futures (TY) up 2.5/32 at 115-0 (L: 114-28 / H: 115-2.5)
  • Jun Bund futures (RX) up 38 ticks at 135.68 (L: 135.28 / H: 135.7)
  • Jun Gilt futures (G) up 35 ticks at 100.78 (L: 100.41 / H: 100.79)
  • Italy / German 10-Yr spread 0.7bps wider at 187.5bps
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