EUROPEAN FIXED UPDATE: Benchmarks firmer but off best as we begin Trump's first full day back in office

Gilts: +6 ticks, 91.64

• Trading in-line with European peers, specifics for the Gilt market focused on the UK labour report which saw the wage metrics increase but largely as expected while the unemployment and payroll measures both point to the market loosening.


• Metrics which helped Gilts gap higher by 21 ticks at the open, however the overnight rally in USTs was likely the main driver behind this with Gilts playing catch up this morning. A narrative supported by BoE pricing being largely little changed post-data; 21bps priced vs 20bps pre-release for February.


• Having faded somewhat with core peers the benchmark finds itself at the lower-end of 91.51-79 parameters, while today’s range has eclipsed Monday’s 91.67 best there is still some way to go before that session’s 91.10 trough.


• Bridgewater’s Dalio, in an FT interview, said the recent Gilt sell-off and GBP weakness suggested the market was struggling to absorb higher borrowing requirements post-budget; adding it “looks like a debt death spiral in the making…” as it will require more borrowing, further spending squeeze or more taxes.


• On the topic of the Chancellor, this week at Davos Reeves’ is to meet with various US banking executives and business leaders in a bid to encourage investment within the UK.


• Finally, books opened for the UK’s syndication of a 2040 Gilt with IPTs +4bps to +4.25bps vs the 2039 peer with orders just before books closed in excess of GBP 115bln.

USTs: +7 ticks, 108-25

• To briefly recap, initial Monday trade for USTs was contained before the WSJ piece drove it to a high at the time of 108-24+.


• Thereafter, the benchmark continued to climb once trade recommenced overnight to hit the current session’s 109-04 peak. Amidst this, yields are lower across the curve in catch-up trade (cash closed on Monday due to MLK Jr. day) which itself is flattening.


• However, the benchmark has been gradually fading from best throughout the morning as we prepare for Trump’s first full day back in office. As it stands, USTs are holding around Monday’s 108-24+ best.


• Returning to Dalio, he also remarked to the FT that the US is “exhibiting signs” that the market could be beginning to struggle to absorb borrowing needs, labelling the debt burden as Trump’s “first big issue”.


• The US docket for today is light in terms of scheduled events but is unlikely to be a quiet session on Trump’s second day back in power.

Bunds: +4 ticks, 131.88

• European yields managed to close out Monday's session a touch lower, with relief over Trump not imposing day-one tariff measures. Though, it remains to be seen what we get out of day two and by extension how the EU would respond to any such announcement.


• Benchmarks began the morning modestly in the green with yields slightly softer by extension but largely contained with newsflow light so far.


• Thereafter, a broad pullback was seen across the fixed income complex taking EGBs modestly into the red and Bunds to a fresh session low of 131.82; a pullback which came without fresh fundamental driver and is possibly a function of participants preparing for Trump’s day two actions.


• German ZEW came in mixed with a significant miss in the Economic Sentiment metric while Current Conditions eclipsed the forecast range, but remained at very low levels; accompanying commentary was, unsurprisingly, downbeat.


• Action which leaves Bunds towards the lower-end of 131.82 to 132.15 parameters.


• Out of France, their debt agency has begun the syndication of a new 15yr EUR-denominated OAT which has already seen demand in excess of EUR 100bln. OATs trading slightly better than EGB peers amid the strong reception for the first post-election syndication.

21 Jan 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk