EUROPEAN FIXED UPDATE: Bearish bias into Trump though benchmarks bounced on strong UK & French supply

JGBs: +1 tick, 140.94

• Modestly softer overnight with yields edging higher across the curve and unsurprisingly most evidently at the short-end into the BoJ policy announcement on Friday, into which market's imply a 95% chance of a 25bps hike.


• While a hike seems all but certain from the markets perspective, it is worth caveating that we get December CPI this evening and, potentially more pertinently, US President Trump is scheduled to speak at Davos today; remarks which could, depending on their content, spark price action of the type that sources in recent session have caveated could stand in the way of a BoJ hike.

Bunds: -7 ticks, 131.78

• A slight bearish bias has emerged as the session progresses, arising despite the pressure seen in equities. Downside which is relatively minimal in nature and as such is potentially not worth reading into significantly with no clear or overt driver behind it in recent trade and as it continues the bearish-trend WTD as we continue to await a significant tariff update from Trump who is scheduled at 16:00GMT.


• As it stands, Bunds are at the mid-point of relatively slim 131.61-131.91 parameters which are marginally below Wednesday’s 131.65-132.22 range Focus for the bloc is turning increasingly on next week’s ECB, with a cut all but certain given remarks from recent officials.


• In the meantime, we await Flash PMIs on Friday and then after the ECB itself the following week will see the first ‘live’ release of their new wage tracker, after its unveiling in December; at the time, the tracker suggested negotiated wage pressures will ease overall in 2025 Y/Y.

OATs: -11 ticks, 122.71

• OATs underperformed into their supply which saw a record amount offered for the exclusively shorter-dated tap. An outing which was very strong across the board and as such OATs have picked up by around 20 ticks from the 122.48 session low following the bidding deadline passing. However, the benchmark remains in the red by c. 10 ticks.


• Results which bolstered the EGB complex as a whole, as the strong French reception on the back of recent record syndications for France, Spain and others such as Finland adds to the narrative that funds are increasing their debt exposure.

USTs: -4 ticks, 108-14+

• Potentially another relatively quiet session in terms of non-supply fixed drivers, with impetus potentially from weekly claims though the headline is seen at 220k which is only marginally up from the prior and as such may not spur much of a move if realised.


• However, the significant caveat to this possibly being a quiet session is President Trump’s virtual Davos appearance at 16:00GMT. We don’t yet know what Trump will be speaking on, though his Fox interview on Wednesday (first since taking office) was very wide-ranging but didn’t add anything new of particular market significance.


• At the same time, the Treasury will announce the sizes of next week’s 2-, 5-, 7-year Note and 2-year FRN auctions.


• Into the above, USTs are modestly lower but also find themselves in a narrow 108-13 to 108-19+ band, which is a tick below Wednesday’s base but still with some room before the double-bottom at 108-08+ from the start of the week.


• If Trump doesn't rock the boat, then we look to Flash PMIs tomorrow for impetus before PCE and of course the Fed next week. Into this, the read from various desks on recent inflation metrics points to the core M/M printing in a 0.16-0.19% range. While this would still keep the Y/Y relatively high, ING points out that base effects will bring it to a more agreeable level in the months ahead which is one of the reasons they are tactically bullish.

Gilts: -10 ticks, 91.85

• Also in the red. UK specifics light aside from some incremental updates around potential closer trade ties with the EU, though nothing concrete/significant has emerged on this yet.


• Action is broadly in-fitting with the above as we await remarks from Trump in what may otherwise be another relatively quiet session.


• Supply was particularly strong from the UK with a b/c of 3.2x surpassing the prior even with a smaller yield on offer, notably the tails were markedly shy of the last auction as well.


• Action which lifted Gilts by around 10 ticks from the bottom of a 91.74-92.05 band, given the magnitude of recent moves any further pullback is littered with support while a reversal brings 92.38 and 92.52 into view.

23 Jan 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk