Bunds Rangebound, Flows Light; Supra Issues, BOE Buyback Ahead
(Bloomberg) -- EGBs see muted price action, with two London-based traders noting very light flows; opening weakness in gilts pressures bund futures, though daily pivot support at 163.30 remains intact; gilts erase losses, limited reaction to bigger-than-expected gain in U.K. CPI.
- European stocks rally (Euro Stoxx 50 futures 1.3%, led by banks); peripheral bonds open tighter and find support as risk assets gain
- UBS recommends buying gilts at 1.15% and says recent selloff is overdone
- Large upside in short sterling bought, fading recent selloff and signaling bet on a BOE rate cut in Dec. 2016 or March 2017
- World Bank 15y EUR benchmark, KFW EU1b 8y tap on the primary deal slate for today; may prove supportive for bunds into pricing
- BOE to purchase GBP1.17b across 15Y+ sector, operation closes at 3:45pm CET, results shortly after
- Most recent operation saw gilts fall after offer-cover ratio jumped to 3.49x, bank bought at a discount
- NOTE: Excel heat map of euro-area govt bond curves and spreads here
YIELDS:
- Spain 10Y yield little changed at 1.11%; Italy at 1.40%; Portugal +3bps at 3.29%
- German 10Y yield steady at 0.06%; Dec. bund futures -1 tick at 163.46
- Bund futures technicals (roll-adjusted):
- Resistance: 163.69 (Oct. 14 high), 163.96 (Oct. 13 high), 164.18 (Oct. 10 high), 164.30 (Oct. 7 high), 164.87 (Oct. 6 high)
- Support: 163.30 (pivot), 163.03 (pivot s1), 162.81 (Oct. 17 low), 162.56 (Sept. 13 low)
- For overnight news and what to watch today, see EU Rates/Credit daybook
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