Monday’s Recovery Extends Before BoJ Speculation Helps Cap Rally

Monday’s recovery from cheaps extended across the wider core global FI sphere, with momentum, UK labour market data, block buys in TY futures and Eurozone PMI readings all factoring into the rally.

• BoJ YCC tweak speculation has helped cap the bid for now, while reports of Israel being willing to delay a ground invasion of Gaza by “days” to allow talks on releasing a large number of the hostages Hamas is holding (per Axios sources) had little impact.
• Bund futures last show 80 ticks higher on the day, while German cash benchmarks are 4-8bp richer, with the curve flatter.
• EGB spreads to Bunds are little changed to a touch wider in the main, with the periphery giving back some of yesterday’s tightening.
• Note that the latest ECB bank lending survey revealed that credit standards tightened more than expected by banks across all loan categories in Q3. This may have factored into peripheral widening.
• Gilt futures are +75 on the day, with a marginally better than expected (but still contractionary) domestic flash manufacturing PMI print and perhaps the presence of I/L supply helping the space further away from best levels. Cash gilts last show 1-5bp richer across the curve, flattening.
• German Bobl & U.S. 2-Year Tsy supply, as well as flash U.S. PMI data, provide the scheduled highlights for the remainder of the day.