EUROPEAN FIXED INCOME UPDATE: European paper awaits French no confidence vote

USTs: -5 ticks

• The US curve is modestly bear-steepening after yesterday's Waller-induced bull-steepening. Commentary from Fed officials since from the likes of Daly has done little to talk up the odds of a pause later this month. As such, pricing for a 25bps cut has continued to climb with such an outcome priced @ 73%. The next likely inflection point for pricing will be Friday's NFP print and next week's CPI data. In the interim, today's calendar includes ADP, ISM services and the Beige Book, whilst Powell is due to speak @ 18:45GMT.


• With the recent steepening in the US curve, the US 2s10s spread has managed to gain a firmer footing above 0bps with the US10yr yield now in close proximity to 4.25% after delving as low as 4.165% yesterday. Mar'25 UST has broken below yesterday's low and is eyeing the WTD trough @ 110.23.

Bunds/OATs: Bunds -25 ticks, OATs -6 ticks.

• Shallow losses thus far for European paper as markets await today's no confidence vote in French PM Barnier; a motion Barnier is expected to lose. If this is the case, the next step goes to President Macron who could call a Presidential election (has said he won't) or attempt to find another PM. Note, Candidates for the role haven't been forthcoming as they know they are unlikely to be able to form a working gov't and pass the necessary fiscal reform. We have a full primer available on the headline feed.


• Elsewhere in the Eurozone, ECB hawk Holzmann has noted that a 25bps cut is conceivable next week but no more than 25bps. Lagarde is due to speak @ 13:30GMT but is unlikely to sway the 25bps vs. 50bps debate.


• DE/FR spread has narrowed to just below 85bps having peaked just shy of 89bps on Monday with last week’s 12yr high at 90bps just above.


• The Dec'24 Bund contract has pulled back from its recent multi-week peak @ 135.46 and slipped below the 135 mark with Monday's low @ 134.72 the next target. The corresponding German 10yr yield has continued to pick itself up from Monday's multi-week low @ 2.03%.


• Note, Bund supply is due at 10:30GMT.

Gilts: -2 ticks

• Gilts saw a marginal pick-up in recent trade (but are ultimately softer on the session) following dovish remarks from BoE Governor Bailey who stated that he sees four 25bps rate cuts in 2025. Note, market pricing ahead of his comments looked for three 25bps rate cuts next year. This view is based on recent positive developments on the inflation front, albeit there is "further distance to travel".


• Mar'25 Gilt contract currently sits below the 96.00 mark with the corresponding yield above 4.25% vs. yesterday's multi-week low @ 4.194%.


• Today's 2031 Gilt auction drew a lower b/c than prior and wider tail, adding to the broader bearishness for UK paper.

04 Dec 2024 - 10:20- Fixed IncomeData- Source: Newsquawk