Global core bonds lose ground today with German Bunds underperforming US Treasuries. Yesterday, risk-off prevailed on markets, pushing equity markets down. A bit unusual, core bonds didn’t profit. Risk sentiment rebounded this morning as the US government announced it grants temporary reprieve from the Huawei ban. Although the move’s only goal is to limit the impact on US companies, financial markets are catching a breath. EU equities trended gradually higher throughout the day, weighing on core bonds. With an empty eco calendar, intraday volatility remained muted. The German yield curve is bear steepening with gains up to +1.5 bps (30-yr). The US eco calendar was empty, offering no guidance for US Treasuries. As US investors joined the debates, the risk relief lost some steam and core bonds opened higher again. US equities opened higher but couldn’t prevent US Treasuries to further pair some of its intraday losses. We remain cautious regarding today’s risk relief. The US yield curve is bear flattening with changes varying between +0.4 bps (30-yr) to +1.5 bps (2-yr). Italian Finance Minister Tria repeated that Italy will respect the budget commitments that were agreed with the EU last year. The Italian spread over the German 10-year yield tightens with 7 bps, outperforming other countries as Greece (-4 bps) and Portugal (-4 bps).

The dollar showed a mixed picture. USD/JPY was well bid as sentiment on risk improved. The move even can be considered as a bid ‘outsized’ given the price action in other USD cross rates and the small rise in US yields. In technical trade, the dollar initially also gained some further ground against the euro. However, the move stalled in the 1.1140/45 area, well ahead of the 1.1110 key support area. Later in the session, the pair even reversed most of this morning ‘decline’. The pair is currently again trading in the 1.1150/60 area. A rather strong intraday bid in EUR/JPY probably supported the EUR/USD price action. A substantial narrowing in intra-EMU spreads also suggest a rather positive market attitude on the region. However, we didn’t see any high profile economic or political story to explain today’s intraday swings.

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Sterling rebounded today after a protracted decline of late. EUR/GBP still made some minor gains this morning, but the move stalled near the 0.8790 resistance (50% Retracement 0.9108/0.8472 move). Aside from this technical factor, UK PM May announced to unveil a new proposal which she hopes will get enough support (from labour MP’s) to get her Brexit deal through Parliament. The obstacles to get parliamentary approval for the deal remain high. Labour still wants a permanent customs union which many pro-Brexit members in PM May’s own party consider completely inacceptable. The battle within the conservative party to succeed Theresa May as party leader and PM only complicates her effort to reach a cross-party majority. Still some sterling shorts apparently considered the announcement as good enough reason to reduce some exposure. EUR/GBP dropped of the intraday top and is currently trading in the 0.8760 area. Cable also rebound from sub-1.27 levels this morning and trades currently in the 1.2740 area. PM May is expected to reveal her proposal at 4 PM London time.

News Headlines

Reuters quotes US Energy Secretary Parry as saying that the expects the House and the Senate to prepare a bill on restrictions on the companies that work on the Nord Stream 2 natural gas pipeline from Russia to Germany.

UK PM May will lay out a new customs proposal in a speech later today. She is expected to consider tighter customs ties with the EU to try to win over Labour lawmakers and find some sort of crossparty deal. She hopes to put forward a new proposal in the week of June 3rd


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