EUROPEAN FIXED UPDATE: Benchmarks diverge ahead of US data

USTs: +3 ticks, 108-29

• A relatively contained start for benchmarks, with USTs in a narrow 108-27+ to 109-01 band with the docket light until we get to the US morning when ISM Manufacturing PMI is due before the expected commencement of the vote concerning House Speaker Johnson at around 17:00GMT.


• The ISM manufacturing PMI headline is expected to be unchanged at 48.4 in December; prices paid are expected to increase to 51.7 from 50.3, while the employment sub-index is seen little changed at 48.0 (prev. 48.1)


• For the speaker, while President-elect Trump has endorsed Johnson it does not yet look as if he has the votes to remain speaker, according to Politico; who report that there are around 12 Republicans who are still undecided and as Massie has committed to voting against him, Johnson cannot afford for any more to wane.


• As mentioned, USTs are in a narrow band and entirely within yesterday's 108-18+ to 109-5 parameters while yields find themselves under very modest pressure across the curve, which is a touch flatter overall.

Bunds: -20 ticks, 133.07

• A modest but increasing bearish bias in play as the benchmark pares some of the upside seen late-doors on Thursday. Currently, at the low-end of a 133.00-48 band, which remains entirely within but approaching the trough of Thursday’s 132.90-133.86 range.


• Specifics relatively light this morning aside from December unemployment metrics from Germany which saw both the unemployment rate and change print below forecast, though no move was seen in Bunds.


• Ahead, the docket is dominated by US events but the ISM and House vote are intersected by a slide release from ECB Chief Economist Lane, slides which are expected to focus on “Geopolitical Fragmentation”.

OATs: -27 ticks, 122.85

• Currently the EGB laggard. Pressure comes amid reports in Le Monde that French PM Bayrou is aiming for a 2025 budget deficit as a % of GDP of 5.4%, higher than the 5.0% targeted by Barnier’s failed administration.


• While such a figure would still represent an improvement from the expected circa. 6% deficit for 2024 and means that Bayrou’s economic plan has a greater chance of domestic approval, as his plan reportedly has a reduced tax burden vs Barnier’s, it will be unwelcome by the European Commission.


• Note, while Bayrou is expected to remove several of the tax measures that Barnier tried and ultimately failed to pass, some of this increased fiscal burden may be compensated for by a VAT increase, reports Le Monde.

Gilts: +7 ticks, 92.40

• Stands as the marginal outperformer in a slim 20 tick range. Specifics include mortgage and money supply data for November from the BoE, metrics which came in below forecast across the board but spurred no real Gilt followthrough.


• While the outperformer, the benchmark is only just holding in the green and is essentially flat on the session with yesterday’s 92.08-88 band serving as near-term support/resistance.


• If Gilts begin to trade more in-line with EGBs then the low from the last day of 2024 stands at 92.06 and then below that the contract low is at 91.64, a test of which would bring back into focus the 10yr yield and the recent 4.65% 2024 peak

03 Jan 2025 - 09:55- Fixed IncomeData- Source: Newsquawk