SPAIN AUCTION PREVIEW: On offer next week

Bonds remain underpinned, no new headlines of note as Bund futures trade to fresh session highs. Next resistance in that contract located at 132.97.

• EGB spreads remain tighter to Bunds, aided by the rally in European equities.
• Gilt futures don’t manage to break session highs as of yet, resistance through today’s peak located at 93.83.

J.P.Morgan “still believe that term premium is likely headed higher over the medium term, given the ongoing growth of the Treasury market, against the backdrop of a sharp structural shift in the demand for Treasuries”.

• They “think weighted belly-cheapening butterflies offer an attractive way to fade the recent decline in term premium”, recommending entering 64:11 weighted 3s/10s/30s belly-cheapening butterflies.

OI data points to limited pack-level positioning swings in Euribor futures on Tuesday, with a mix of net long setting and net short cover generally observed.

• Only three contracts (M5, Z5 and U7) saw a daily OI change of more than 5,000.
• Z5 has now seen four consecutive sessions of indicative net long setting.
• Yesterday’s dovish flow in Z5 included: 98.25/98.625cs vs 97.75p, bought the cs for -0.75 in 8k (ref 98.05) and 98.50/98.75cs, bought for 3.5 in 40k total.