Overnight Fixed Income Wrap: Bund and Gilt Yields Edge Lower

Bund and Gilt yields eased in tandem with Treasury yields as fears of an escalating trade war continued to hang over stock markets. Peripherals were underperforming as investor risk appetite appeared to be eroding after European Central Bank President Mario Draghi’s dovish stance on rates boosted Italian BTPs in last week.

The 10-year Bund yield was down 0.8 basis point at 0.392%, the 10-year Gilt eased 1.09 bps to 1.304%, while the Italian 10-year rose 0.8 bp. Stock markets fell, with the DAX down 0.61% and the FTSE 100 off 0.08%.

Earlier Fixed Income Movement:

2:13 am ET:

Ten-year Bund yields fell 0.8 bp to 0.392% in opening trade, and 10-year Treasury yields were down 1.3 bps at 2.908%, as stock markets remained under pressure amid fears of an escalating trade war. US futures are heading south after a weak session in Asia.

Released overnight, UK Rightmove house price data showed some improvement, but the focus Monday will be on political evens in the UK and Germany. UK Prime Minister Theresa May heads for a showdown in parliament over the Brexit withdrawal bill, while German Chancellor Angela Merkel is facing a battle with German Interior Minister Horst Seehofer, who is leading a revolt of the Bavarian sister party Christian Social Union over immigration.

Action Economics said that in the extreme, the German dispute it could bring down Merkel’s parliament, but chances are that Seehofer won’t risk the breakup of the CDU/CSU alliance, which would relegate the CSU to a regional party.