EUROPEAN FIXED UPDATE: Initial pressure resurfaces as a foray higher failed to take hold

Analysis details (10:50)

• Once again, a European session of two halves for the Bund as initial pronounced downside abated to bring the German benchmark a handful of ticks firmer on the day at best; albeit, the move higher occurred without a fresh driver and as such has not cemented itself.


• The first half of the session featured broad pressure for EGBs, with Gilts lagging and perhaps congnisant of the looming Ofgem price cap update on the inflation-side and also reports in the FT that proposals to cap bills around the GBP 2k/year mark would cost circa. GBP 100bln over two-year.


• Specifically, Gilts posted downside of around 90 ticks at worst though this pressure has since more than halved in magnitude. As such, yields continue to pick up with 50bp fully priced in for September 15th and around a 20% chance of a 75bp move currently implied.


• Continuing the performance of recent days and perhaps taking impetus from the Gilt narrative, Bunds slipped to within a handful of ticks of 150.00 and thus below yesterday’s 150.23 trough and bringing touted support at 149.94 and thereafter 149.69 into focus. Amidst this, yields are picking up and the German curve is bear-flattening with the 2yr 5bp higher and above 0.91% at best and approaching yesterday’s 0.94% peak. Further out, the 10yr yield is also elevated and has already lifted to another WTD peak and thus marks the sixth consecutive day of higher yield highs. Most recently, a well-received 2032 Bund issuance passed without fanfare or notable rection, with the sale attracting a much stronger cover than in recent outings, though this is not particularly surprising given the comparably elevated yield on offer.


• For the session ahead, the docket is very sparse from a European perspective and only incrementally better stateside as Durable Goods and 5yr issuance serve as highlights before the Jackson Hole schedule is released overnight (reminder, Chair Powell is Friday at 15:00BST). As is stands, USTs are once again bucking the trend from EGB peers and reside a handful of ticks into positive territory, but remain off best levels as the complex’s broader pickup failed to make substantial ground above 151.00 in Bunds and just before 118.00 in USTs. To recap, yesterday’s 2yr was poor and sparked pressure in the associated benchmark in its wake and going into today’s USD 45bln 5yr.

24 Aug 2022 - 10:50- Fixed IncomeResearch Sheet- Source: Newsquawk