EUROPEAN FIXED INCOME UPDATE: Threadneedle St. forecasts unravel again, as data weaves a hawkish picture

Analysis details (10:45)

• The lead from APAC/US was a firmer one given a strong 2yr outing Stateside and broader US-China related risk aversion. Thereafter, JGBs were unable to benefit from the BoJ’s presence amid reporting that bonds could be issued to fund childcare support.


• In the European morning, fixed came under marked pressure across the board on the hotter-than-expected UK April CPI release. As, despite the long-forecast easing of inflationary pressures finally occurring the magnitude was less than markets and the BoE had forecast. Specifically, Bunds dropped to a 133.46 intraday low taking out the 133.50-53 support band and bringing the April 19th low of 133.10 and thereafter 132.81 into play.


• Unsurprisingly given the above, the standout mover is Gilts which on the open gapped lower by 200 ticks from yesterday’s last price at 97.05 to the current 94.94 session trough. Expectations for the June BoE now have a 25bp hike fully priced in from the current 4.50% Bank Rate. Thereafter, the December 2023 terminal is now edging above 5.25% with around a 40% chance of 5.50% implied, compared with a pre-release terminal of 5.0%. Post-CPI, we are particularly attentive to Governor Bailey’s two scheduled events today at 09:30 and 13:00, with the latter being a WSJ appearance.


• Data aside, the move in yields has added even more natural concession ahead of today’s 2033 Green sale, though the magnitude of near-term pricing alterations is limiting the influence of curve concession somewhat.


• Continuing with supply, the German dual-tranche was relatively well-received particularly when taking into account that the morning’s Gilt-driven concession had largely eroded for Bunds, with upside intensifying slightly following the German Ifo which was downbeat overall and crucially highlighted that the number of firms looking to increase prices has fallen further. As it stands, Bunds post upside of circa. 30 ticks and are at the upper-end of 133.46 to 134.23 parameters.


• Further out, attention remains keenly on the US debt ceiling as the theoretical X-date draws closer and negotiators are seemingly still far apart on some key issues with no fresh guidance on when talks are set to resume. Additionally, FOMC Minutes for May are due and as usual are slightly stale but nonetheless will be interesting to determine the magnitude of discussion around a pause at this point.


• Later, we get a US 5yr sale which follows the stellar 2yr yesterday and could well spark some pre-supply concession as we get closer to the auction time. Currently, USTs are little changed after dipping to a low on the UK metrics but thereafter edging higher as the focus returns to the debt ceiling.

24 May 2023 - 10:45- Fixed IncomeData- Source: Newsquawk