EUROPEAN FIXED UPDATE: Benchmarks bounce on cool German State CPIs, US PCE looms

USTs: -3 ticks, 109-03

• In the red, weighed on by the latest Trump-tariff rhetoric. Action which has propped up yields stateside with the short-end leading ever so slightly given the potential near-term tariff implications of any measures.


• Action which took USTs to a 108-31 trough in the early European morning. However, the complex began to make its way gradually off lows as no late-Thursday announcement came from POTUS as some had guided us towards. Additionally, a WSJ sources piece implied that officials are working to find a way to dial-back the tariff rhetoric/situation.


• As such, USTs were off lows into German state CPIs (see Bunds for details) and then lifted further on that release but were unable to make their way into the green.


• The complex now looks to a packed US afternoon headlined by monthly PCE with the core M/M seen in a 0.16-0.20% range. Into this, USTs are holding around 109-00 in 108-31 to 109-06 parameters with yields modestly bid across the curve.

Bunds: +43 ticks, 132.33

• Echoes of the above. Pre-data, hit a 131.62 trough on the inflation implications of any Trump tariff escalation. Thereafter, EGBs derived a bid from Prelim. French HICP figures which came in cooler than expected and took Bunds back towards the 132.00 mark.


• Thereafter, cooler German State CPIs than implied by the forecasts for the 13:00GMT mainland release alongside a cut to the growth view in the ECB SPF sparked a dovish reaction, though perhaps somewhat capped by a jump in EBC SCE inflation views.


• Specifically, Bunds lifted from just below the 132.00 handle to a 132.45 session high over the course of five/six minutes. Action which was sufficient to bring Bunds, and the broader EGB space, back into the green ahead of mentioned US data and of course the mainland German figures.


• That aside, we get remarks from ECB’s Villeroy this afternoon, Villeory is often seen as holding the centre view at the ECB and as such his views on yesterday’s meeting and subsequent sources around March, April and the dropping of “restrictive” will draw focus.

Gilts: +9 ticks, 92.70

• Moved in tandem with the above throughout the morning. Began the session with very modest upside, as the dovish impulse from the French data and general UST pickup off lows served to offset bearish pressure from the Trump tariff updates.


• Since, UK specific light with Nationwide House Prices soft but not sparking any follow through. Ahead, the docket is also devoid of UK events as we count down to the BoE next Thursday where 21bps of easing is currently implied with focus on the vote split, though it on-paper looks less eventful than the December 6-3 split.


• Find themselves at a 92.93 high, driven to it by the German data, a level which marks a YTD peak and as such we now look to 93.09 from 20th December.

31 Jan 2025 - 10:05- Fixed IncomeEU Research- Source: Newsquawk