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BONDS: Off Lows As Oil Moves Lower, Gilt/Bund Spread At Fresh Cycle Highs

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Weakness in crude oil (our commodities team hasn’t seen a key driver) and the presence of some key technical areas in German & U.S. FI markets (covered in detail earlier) seem to limit early Tuesday losses in core global FI markets.

  • German yields are now little changed to 1bp lower on the day, with the curve flattening.
  • Gilts hold wider vs. peers after this morning’s UK wage data, 3bp wider vs. Tsys and ~5bp wider vs. Bunds.
  • The gilt spread to Bunds is less than 3bp away from its ’22 mini-Budget closing high (227.5bp), last 225bp.
  • UK fiscal risks, stickier UK inflation, Eurozone economic growth headwinds and the ECB’s more activist approach to monetary easing (when compared to the BoE) continue to underpin the spread.
  • The German funding plan (due to be released at 9:00GMT/10:00CET) presents immediate event risk for the spread.

Fig. 1: UK/Germany 10-Year Yield Spread (bp)

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Weakness in crude oil (our commodities team hasn’t seen a key driver) and the presence of some key technical areas in German & U.S. FI markets (covered in detail earlier) seem to limit early Tuesday losses in core global FI markets.

  • German yields are now little changed to 1bp lower on the day, with the curve flattening.
  • Gilts hold wider vs. peers after this morning’s UK wage data, 3bp wider vs. Tsys and ~5bp wider vs. Bunds.
  • The gilt spread to Bunds is less than 3bp away from its ’22 mini-Budget closing high (227.5bp), last 225bp.
  • UK fiscal risks, stickier UK inflation, Eurozone economic growth headwinds and the ECB’s more activist approach to monetary easing (when compared to the BoE) continue to underpin the spread.
  • The German funding plan (due to be released at 9:00GMT/10:00CET) presents immediate event risk for the spread.

Fig. 1: UK/Germany 10-Year Yield Spread (bp)

Keep reading...Show less