US Govt’s-Bonds get Vlieghed Overnight

Bonds started higher in Asian trading last night on news of North Korea firing another missile over northern Japan, before reversing lower in European hours. Hawkish comments by Bank of England member Vlieghe (previously dovish) about the data “increasingly suggesting that we are approaching the moment when Bank Rate may need to rise”, as soon as “in the coming months” were the primary driver, hammering Gilts after they had attempted to stabilize beforehand after what has been a very bad week for UK fixed income. For the Reuters review of Vlieghe’s comments, please see here.

10-year Gilt futures are down a full point from Thursday’s settle under this pressure, and by just over ¾ point from their open this morning. 10-year Gilts/Bunds has blown out 7.7bp on Tradeweb, to +88bp.

Bunds have also been caught in the downdraft, 10-year futures down ¼ point from Thursday’s settle, and ½ point from their open. 10s/Bunds has tightened 1.2bp as a result, to +176.9bp last. Within Europe, spreads are tighter to Bunds in a directional fashion, by 0.8bp for France, 1.2bp for Italy, 2bp for Spain, and 4bp for Portugal.

Volume has been good within Treasuries, with 332k 10-year futures trading by 06:23 EST. Good selling has leant on the market on the way down, from overseas and leveraged accounts. Caution meanwhile has been expressed at how little the market bounced following the news from North Korea, and little if any help has come from news of what the Mayor of London on his Twitter account is calling a terrorist incident after an explosion on the London underground.

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