EUROPEAN FIXED UPDATE: Contained trade with drivers light aside from multiple 10yr auctions

Analysis details (10:12)

• Core benchmarks are relatively contained and yet to deviate much from the unchanged mark in limited newsflow ex-supply; though, there is a minor discrepancy between the performance of core and periphery EGBs.


• Bunds are essentially unchanged and as such at the mid-point of 133.02-133.44 parameters in a session that has been particularly light and devoid of any fresh drivers. Action which follows similar APAC trade where the main fundamental update was the release of Chinese CPI and PPI, while the July release was the first deflationary print since 2021 market reaction was muted at the time – click here for newsquawk analysis. Given the limited action, Bunds and EGBs more broadly remain in very close proximity their respective Tuesday peaks; thus far, Bunds have been to within a tick of that 133.45 mark. Above that, we return to the levels flagged earlier in the week which include 133.92 and 133.97 from the 27th and 24th of July respectively.


• Note, the periphery is faring marginally better than its core peers, outperformance which is perhaps a function of the lack of supply in the periphery today vs 10yr outings from the UK, Germany and US.


• Turning to the UK, Gilts have been the relative outperformers throughout the session with specifics limited though it is worth highlighting that UK debt didn’t benefit quite as much from the week’s initial bullish price action. The morning’s 10yr Gilt sale was a relatively robust outing, as while the cover dipped incrementally from the prior this can be explained away by the lower yield on offer and summer trade. As such, the sale lifted Gilts to a 95.41 session high, some way shy of Tuesday’s 95.57 peak; since, the benchmark has pulled back by just over 10 ticks as it digests the sale in thin conditions.


• Continuing with the multiple auctions, which are the sole scheduled Tier 1 events for the complex, the backdrop is somewhat constructive for the Bund and US Note given the contained action sees no further erosion of last week’s hefty concession following the Treasury estimates and refunding announcement. Albeit, the contained action means the complex is not reclaiming some of the concession it lost on Friday and in the first few sessions of this week. As a reminder, the US 3yr outing was well received, the larger size was taken down very well even when accounting for summer conditions and Thursday’s US CPI which is expected to tick up a touch, but much of that is potentially a function of pronounced base effects for the month.


• Thus far, USTs are in-fitting with their core EGB peers in residing near the unchanged mark. Given the contained price action, there is little of note occurring across the curve where yields are under very modest pressure; though, this does come with the incremental exception of the 3yr, as the associated benchmark dips a touch after digesting Tuesday’s sale.

09 Aug 2023 - 10:12- Research Sheet- Source: Newsquawk