EUROPEAN FIXED UPDATE: Benchmarks benefit from the risk tone, Bunds bolstered further by a strong Bobl outing

Analysis details (10:50)

• Core benchmarks are firmer across the board given the deterioration in broader risk sentiment that took hold during APAC trade and was initially spurred by the downbeat Chinese trade data and then added to by source reports around Country Garden Holdings.


• Given the above, EGBs are bolstered across the board with both core and periphery counterparts benefitting from the tone. For Germany, the Bund lifted to a 133.08 peak following a particularly strong Bobl auction, surpassing the July 31st/August 1st virtual double-top at 133.05/06. A move which brings into play 133.34 and thereafter 133.92, from the 28th and 27th of July respectively. Elsewhere, this morning saw the release of the June ECB Consumer Expectations survey which saw another decline in the inflation view for the 12-month view and downside for the three-year ahead metric. However, this spurred only very fleeting upside in EGBs given the release is relatively dated and participants are very much focused on the next HICP print before the September announcement and accompanying projections. Note, while action is broadly balanced between the European core and periphery, we have seen a slight widening of the BTP-Bund yield spread to just above the 170bp mark, incrementally higher than the last few weeks but shy of the mid-July wides at circa. 175bp.


• Crossing the Channel, Gilts are similarly bid with their own specifics light and action seemingly a function of the broader risk tone and aforementioned factors. Thus far, Gilts have lifted to a 95.31 peak from a 94.67 low/open, brining into play last week’s best at 96.18/19 from Monday/Tuesday respectively. For reference, the morning’s I/L sale was relatively well received though the markedly higher real yield failed to spur any additional demand vs the prior, with the usual summer lull perhaps factoring.


• Stateside, the picture is much the same as EGBs and Gilts with Treasuries posting gains of circa. 10 ticks in relative proximity to the high point of 110.31 to 111.18+ parameters. The docket ahead is fairly busy featuring Fed speak from Harker (voter) and Barkin (2024 voter) due, while Barkin has spoken recently we haven’t heard much from Harker in several weeks. As a reminder, in June Harker advocated a pause and remarked that the Fed was at the point of or close to where they can sit on rates for a while. Fed aside, the latest IBD/TIPP release is due before a 3yr Note auction; a sale which starts the week’s increased issuance figures from the US after last week’s quarterly refunding. Ahead of this, the short-end benchmarks are underperforming the belly/longer-end, though the futures are all bid across the board and as such yields are lower across the curve featuring 2/3 year yields as the relative outperformers as above given upcoming supply.

08 Aug 2023 - 10:43- Fixed IncomeResearch Sheet- Source: Newsquawk