EUROPEAN FIXED UPDATE: Benchmarks bid as AAPL reports hit sentiment and into Bessent's first Quarterly Refunding

USTs: +7 ticks, 109-14

• A morning of gains, upside was initially modest in nature and tempered by hawkish developments out of Japan via the largest wage data and remarks from former official Hayakawa around potentially hiking twice more in 2025.


• Thereafter, USTs resumed their grind higher and derived some impetus from the Bloomberg reports that China could investigate Apple, a report which weighed on equity sentiment.


• Specifically, USTs lifted to a 109-13+ session high over the course of 20-minutes. Amidst this, EZ Final PMIs and ECB wage metrics hit (see below) though these had no discernible impact on fixed.


• Ahead, the docket is packed with Fed speak, Barkin (2027 voter), Goolsbee (2025), and Bowman (voter) all scheduled. Data wise, ADP is seen at 150k (prev. 122k) with focus on the internal wage metrics; a release which serves as a preview ahead of NFP on Friday where a 170k (prev. 256k) print is forecast. Thereafter, ISM Services hits with the headline forecast to tick up slightly.


• Elsewhere, Quarterly Refunding is due and will be the first outing under Treasury Secretary Bessent. Monday’s financing plans are indicative of the refunding figures themselves printing as expected with 3yr, 10yr & 30yr auctions totalling USD 125bln; however, it remains to be seen if Bessent alters the path ahead or changes the COVID-era skew toward bills vs the long-end for short-term book balancing. ING reminds he has previously “intimated a degree of frustration” with this.

Bunds: +48 ticks, 133.60

• Firmer but holding just off a 133.62 peak. A high point which printed on the mentioned UST move amid the Apple investigation reports. Another move higher brings the 133.86 YTD peak into play while a reversal looks to the figure and then 132.72 and 132.41 from the last two sessions.


• For the bloc specifically, the region’s final PMIs have been subject to slightly more revision than is usually the case with French figures revised down amid political uncertainty & weak customer demand while Germany was revised slightly higher as job creation begins to return.


• For the EZ itself, Composite was unrevised while Services saw a mild downward revision. Most pertinently, Service sector costs increased at a higher rate with wage increases in recent months driving and likely to be an unwelcome signal for the ECB. On the point of wages, the first formal release of the ECB’s wage data saw a very slight revision higher in the 2025 estimate to 3.256% from the initial 3.2% estimate.


• The hawkish elements of the above perhaps factoring in the slight pullback in EGBs from mentioned highs.


• Ahead, the busy US agenda (see above) takes centre stage though we do have a text release scheduled from ECB Chief Economist Lane on “The Euro area in 2025"

Gilts: +56 ticks, 93.33

• Following the above throughout the morning and hit a 93.37 peak just prior to the release of the UK’s own Final PMIs.


• Figures which were subject to modest negative revisions while the internal commentary points to an increasingly stagflationary environment.


• On growth (or lack of), Services providers saw only a marginal increase in output levels alongside a downturn in volumes added while activity expectations for the year ahead weakened with optimism at its lowest since Dec’2022. Additionally, the sector’s employment numbers decreased “to the greatest extent for four years” with cuts in most sub-sectors.


• On inflation, Services providers highlighted “sharply rising” salary payments and the incoming National Insurance contribution increase while the Composite release featured input price inflation at an 18-month high.


• Ahead, the docket is light and therefore US-events will take centre stage. A move higher brings 93.54 from Monday into view while a move lower looks to 92.53 and 92.47 from Monday and Friday respectively.

OATs: +45 ticks, 124.58

• The main events for the region are the two censure motions against PM Bayrou after he used Article 49.3 to force through elements of the budget on Monday. However, the PM should survive as PS on the left and RN on the right have said they will not vote in favour of the motions.


• However, the PM will likely have to use Article 49.3 again and possibly twice in the near-term to push through the remaining parts of the bill. Opening him up to at least one more confidence motion which may be more problematic given the ongoing disputes around the budget and compromises Bayrou has/has not made.


• Ahead of this, the OAT-Bund 10yr yield spread remains steady just above the 71bps mark with OATs trading broadly in line with European peers.

05 Feb 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk