Off Best Levels, Still Comfortably Firmer On The Week

Core global FI markets remain underpinned this week, albeit trading mixed on the day.

• Bond-supportive factors seen early this week have included a dovish shift in market pricing re: the BoE & ECB, continued German fiscal/issuance questions after the well-documented court ruling against the German government, soft U.S. housing data and a further moderation in a privately produced UK shop inflation measure.
• Still, continued hawkish utterances from the BoE and ECB, continuing to stress the higher for longer mantra, and the hold of month-to-date lows in German 10-Year yields, have acted as limiting factors for the bid today. As has relatively soft demand at the latest long end gilt auction out of the UK.
• Cash Tsys bear flatten with yields 1.5-3.5bp higher on the day. Note that the latest JPM Tsy client survey shows the joint highest all client net long position seen since ’10, while the active client side shows the highest net long level in the history of the survey.
• German yields are 1bp lower to 2bp higher, twist steepening. Peripherals remain wider on the day, with the impact of ECB President Lagarde’s Monday comments re: probably discussing PEPP reinvestments in the not-too-distant future still being felt.
• Gilt yields now show 1.-2.5bp higher, also steepening, with the footprints of the long-end supply noted above and hawkish utterances from Haskel & Ramsden seen.