EUROPEAN FIXED UPDATE: Benchmarks cheer the nomination of Bessent to the Treasury, awaiting supply and central bank speak

USTs: +11 ticks, 110-00

• Outperforming, following US President-elect Trump selecting Scott Bessent as the next Treasury Secretary, an update which has sparked pronounced bull-flattening, weighing on the USD as well.


• Action which is occurring on the narrative that he is a fiscal deficit hawk, which should equal less issuance. Also, he is regarded as being relatively tariff-moderate which should temper inflationary pressure and lead to looser monetary policy, all else equal.


• However, there has been some concern over Bessent’s proposal of appointing a “shadow” Fed Chair which would mean that “no one is really going to care” what Powell says for the remainder of his term; Bessent has since said the idea is no longer worth pursuing, via WSJ.


• As it stands, USTs towards the top-end of a 109-28+ to 110-05 parameter, surpassing last week’s best by half a tick but still some two-ticks shy of 110-07+ from 11th Nov. and then 110-09+ from the 7th.

Bunds: +10 ticks, 133.21

• Firmer in tandem with the above. However, Bunds have been fading from best across the morning given the overall constructive risk tone and looming supply. A move which began before and then accelerated after the November Ifo release.


• While the latest Ifo release was weak with current conditions coming in below the forecast range, the expectations figure was firmer than expected and only fell slightly from the prior. Furthermore, internal commentary notes that it looks as if the economy will stagnate in Q4, possibly a better outturn than some will have feared; Ifo also highlights trade as a bright point.


• A release which stands in a similar light to last week’s flash PMIs, in that the current situation is bleak but there are possible glimmers of optimism for the future given the anticipation of a new German gov’t in the near-term. However, it remains to be seen what policies the US will enact under Trump and what impact these will have.


• As it stands, Bunds remain in the green but at the lower-end of a 133.15-57 band. If the pullback continues, there is someway to go before support at 132.14 and 132.06 from last week.


• Ahead, the region awaits supply from the EU before remarks from ECB Chief Economist Lane and thereafter Makhlouf.

Gilts: +33 ticks, 94.82

• Echoes of the above. Pulled back around/after the German Ifo release. A release which coincided with a speech from BoE’s Lombardelli.


• A lengthy text from the BoE Deputy Governor, much of which was spent going over known data issues from the ONS and the impact of Bernanke's review; on policy, Lombardelli’s message was that she favours a gradual, data-dependent approach to removing restriction.


• Remarks which haven’t had any real impact on the odds of a December cut, currently less than a 20% chance of a 25bps move is priced.


• Range for Gilts is quite slim thus far, and while they are in the green currently holding at the lower-end of a 94.71-95 band with Friday’s close at 94.48. If the pullback continues and Gilts move into the red then support comes at 94.05 before the figure and then 93.88.


• Ahead, BoE’s Dhingra due though it remains to be seen what the outspoken dove will add to the narrative around December, given she is almost certainly going to be in favour of a cut at that meeting, a view which will likely be in the minority on December 19th.

25 Nov 2024 - 10:10- Fixed IncomeEconomic Commentary- Source: Newsquawk