OIL: Singapore Total Oil Inventories Edge Lower Led by Light Distillates

SOFR futures spread activity ticking over in early London trade:

• SFRU5/M6 ~5.7K given at -29.0.
• SFRU5/U6 paper paid -31.0 on 2.2K.
• SFRZ5/Z6 paper paid -15.5/15.0 on 5.5K.

A mix of the impending EGB supply, setup ahead of the upcoming German fiscal reform vote and higher oil prices (albeit with the latter driven by increased geopolitical risk premium) weighs on bonds early today.

• Gilts open lower as a result, although futures remain within yesterday’s range, trading as low as 91.89.
• Yesterday’s rally increased the risk to the bearish technical setup.
• Bulls need to overcome the Mar 17/7 highs (92.37/63), with the latter providing key resistance.
• Initial support located at the March 13 low (91.07).
• Yields 3-4bp higher across the curve, light steepening seen.
• SONIA futures mostly tick lower alongside wider core global FI markets, last +0.5 to -4.0.
• BoE-dated OIS shows ~51.5bp of cuts through December vs. ~52.5bp early today.
• GBP4.25bln 4.375% Mar-28 gilt supply is due this morning.
• Outside of the auction, macro & cross-market cues are set to continue to dominate, given the backloaded nature of this week’s UK risk events.

This morning, Finland will hold a conventional auction to a sell combined E1.0-1.5bln of the 3.00% Sep-34 RFGB (ISIN: FI4000571104) and the 2.75% Apr-38 RFGB (ISIN: FI4000546528). See below for views from Danske Bank and Nordea ahead of the auction:

• Danske Bank: “Finland has performed well versus peers such as Germany and Ireland”…“This is driven by the relative supply given that Finland only needs to raise some EUR 3-7bn to reach either 3.5% or 5% of GDP for defence spending relative to Germany where the borrowing requirement would rise by more EUR 60bn to EUR 120bn”.
  • “Rather than doing the country spread, then investors can take advantage of the steep ASW-curve, and we recommend buying RFGB 09/34 versus swap (€str) given the solid roll-down on the ASW-spread curve”.
  • “Regarding RFGB 04/38, there is not much roll-down on the ASW-spread curve as in the 5Y to 10Y segment”…“However, it does look cheap relative to the surrounding bonds RFGB 04/36 and RFGB 09/40, when we look at the butterfly on the ASW-spread curve”.
• Nordea: “Since Finland is one of the more well-equipped countries in terms of defense spending in the Eurozone, we reiterate our view from the last auction comment: all else equal, Finland should be less impacted by the overall increase in defense spending in the Eurozone”.
  • “Looking at the two bonds versus their most common peer, Austria, Finland is currently trading at favorable levels. If one is looking to add semi-core risk outside of France and Belgium, Finland appears to be a strong option”.
  • “Examining the curve for funded investors buying in ASW, the sweet spot in the 10Y sector is slightly shorter than 09/34. However, between the two bonds, RFGB 09/34 would be preferred in terms of risk-adjusted Carry & Roll.