Under Pressure On Global Spill Over & As Oil Recovery Extends

An extension of the recovery in crude oil will be adding to the pressure derived from U.S. Tsys and JGBs, leaving EGBs and gilts lower on the day.

• EUR5y5y inflation swaps tick away from yesterday’s multi-week lows.
• Bund futures -45 at 130.91, with German yields 2-5bp higher as the curve steepens.
• The weakness in core global FI, modest widening in EUR credit indices and a downtick in EUR equities sees some peripheral spread widening.
• The 10-Year BTP/Bund spread moves back above 135bp after failing to sustain a move below 130bp in recent sessions.
• Signs of a moderation in demand for the latest BTP Valore offering has weighed on BTPs in recent days.
• Ascension Day will be limiting EGB liquidity.
• Gilts have also softened ahead of the latest BoE decision.
• Futures are -39 at 97.56, but bears have failed to force a move below Tuesday’s low.
• The recent recovery in the contract poses a bit of a threat to the overarching bearish technical theme, although the April 12 high (98.23) was never challenged. Initial support comes in at the 20-day EMA (97.07).
• Cash gilt yields are 2-4bp higher as the curve steepens a little.
• We have highlighted our BoE preview on several occasions this morning, along with our belief that a dovish BoE outcome probably presents the greatest risk to market pricing.
• 54bp of BoE cuts are priced through year end, with 24bp of cuts priced through the August MPC.