EUROPEAN FIXED UPDATE: Benchmarks bid into the FOMC. BTPs & OATs attentive to domestic matters

USTs: +5+ ticks, 109-06

• Firmer into the FOMC. Derived support from a strong 7yr Note auction on Tuesday, an outing which followed mixed results across Monday’s lines.


• As it stands, USTs are at a 109-09 peak which is just below Monday’s 109-12 best. If the move continues then there is a bit of a gap until the 110-00 mark and then the 110-03+ peak from mid-December. On the flip side, pressure brings 109-00 into view in the immediacy before 108-25 and then a cluster between 108-16 and 108-08+, the latter being a double bottom.


• Of course, the main focus for the day is the FOMC. Which is expected to see rates unchanged with focus firmly on the statement/Powell for any forward guidance and in particular tariff/Trump considerations.


• Given the uncertainties around Trump and the associated market implications of measures he may/may not implement, the most prudent approach for the Fed will likely be to stick to a cautious and data-dependent approach, a view markets seem to chime with as a 25bps cut is not fully priced until June’s meeting.

Bunds: +32 ticks, 131.74

• Moving in tandem with USTs and as such find themselves at a 131.76 peak, stopping shy of the figure and then Monday’s 132.14 best.


• Focus for today is of course the FOMC (see above), however the bloc has supply to contend with before that with the first tap of a 10yr Bund due after its syndication earlier in the month, which should go well.


• Note, BTPs are currently trading broadly in-line with core counterparts after the Meloni-driven action in the prior session which saw BTPs slump to a 118.88 trough, a new low for the week. Action which has seen the spread return towards pre-report levels.

OATs: +12 ticks, 122.65

• Firmer, but modestly underperforming core peers.


• Underperformance which is on account of increasing attention on tensions between the French PM and the Socialist party. Tensions which stemmed from the PM’s remarks around immigration at the start of the week. In response, Socialist member Brun said they have suspended negotiations with the PM on the budget.


• While softer, OATs are yet to significantly react to this as we await the views of other members on the PM’s language and if he has spoken to the Socialists about the matter. Nonetheless, the OAT-Bund spread is widening and is back above 74bps.

Gilts: +36 ticks, 92.45

• Directionally in-fitting with the above into a Green Gilt tap and, more pertinently, a potentially significant speech from Chancellor Reeves on growth.


• A speech which is expected to touch on numerous issues incl. Heathrow, housing, transport, a UK “Silicon Valley”. The underlying theme of the appearance is to show that the UK government is taking and is committed to measures to bolster the UK economy.


• Into that speech, Gilts are trading towards 92.47 highs with Monday’s 92.68 peak ahead. From a yield perspective, this leaves the UK’s 10yr yield at a 4.58% session peak, toward Monday’s 4.55% multi-week low and markedly shy of January’s 4.925% high.


• Reeves aside, BoE’s Bailey is scheduled and while his Treasury Select Committee hearing is on financial stability rather than monetary policy it will still be of note given Gilt market action in recent weeks.

29 Jan 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk