EUROPEAN FIXED INCOME UPDATE: USTs calm ahead of CPI, German yields continue their march higher

USTs: -1.5 ticks; 108.29

• Steady ahead of upcoming US CPI data whereby core M/M CPI is expected to tick higher to 0.3% from 0.2%, Y/Y nudge lower to 3.1% from 3.2%, headline M/M is seen falling to 0.3% from 0.4% and Y/Y is expected to hold steady at 2.9%. An in-line report could cement the markets view of inflation stickiness given that the most recent Fed statement did not include language that inflation had made progress to its 2% goal. As it stands, markets do not fully price another 25bps cut until September with a total of 35bps of easing seen by year-end.


• On the trade front, WSJ reports that reciprocal tariffs could go beyond simply matching other nations’ tariffs to take into account nontariff trade barriers. As such, this could leave Japan, Europe, and China on the hook for higher tariffs. Elsewhere, Reuters reports that an announcement on reciprocal tariffs could come later in the week, according to sources.


• Elsewhere, today sees Powell address The House with comments expected to echo those made yesterday whereby the FOMC Chair noted that policymakers are not in a rush to cut rates. Bostic and Waller are also due (latter is speaking on Stablecoins). US 10yr supply is due at 18:00GMT.


• After printing a base at 4.40% on 5th February, the US 10yr yield has been up for 5 sessions in a row and ventured as high as 4.556% today; follows last week's NFP print and anticipation of a sticky US inflation report today. The curve currently has no steepening/flattening bias. Mar'25 UST is currently holding above the 4th Feb low @ 108.20+.

Bunds: -5 ticks; 132.65

• German yields are higher once again after a strong showing yesterday which Rabobank attributes to a glut of (particularly sovereign) issuance given an absence of any market moving type newsflow (including a lack of fresh EZ data or a shift in tone from central bank speakers).


• It remains to be seen how durable the recent uptick in yields will be given the Eurozone's uncertain growth outlook, easing bias at the ECB and vulnerability of the Eurozone to tariff action from the Trump administration.


• Today's EZ calendar is lacking in terms of data highlights. However, Germany's Nagel is due on the speaker slate and to talk on the neutral rate; note, policymakers have continued to downplay the importance of targeting the neutral rate when formulating policy.


• The German 10yr yield has now risen to a high of 2.45% with only minor resistance until the 2.5% level. Mar'25 Bund is now eyeing the 3rd Feb low @ 132.41.

Gilts: +3 ticks; 92.95

• Gilts marginally higher after yesterday's session of losses. the lone highlight on today's UK calendar coming via a speech by MPC member Greene @ 15:00GMT. Greene's remarks will follow those yesterday of dovish dissenter Mann who gave her reasoning behind her dissent at the last meeting but noted her “active rate policy does not mean cut, cut, cut" and suggested she may not opt for another 50bps cut at the next meeting. Note, Greene was part of the majority on the MPC last week who backed a 25bps reduction. Greene hasn't spoken since early December when she noted that services inflation has remained stubbornly high, underpinned by wage growth.


• As it stands, markets don't fully price the next 25bps BoE cut until June with a total of 59bps of loosening seen by year-end.


• Tomorrow sees the release of monthly and Q4 UK GDP with the Q/Q rate expected at -0.1% vs. prev. 0.0%.


• Mar'25 Gilts are currently sat just below the 93.00 mark with the corresponding 10 year yield holding above the 4.5% mark.

12 Feb 2025 - 09:45- Fixed IncomeData- Source: Newsquawk