EUROPEAN FIXED UPDATE: Benchmarks in the green with the tone tepid into PCE, EGBs hit by hawk-Schnabel

USTs: +9 ticks, 110-19+

• Firmer, towards the 110-20+ session high though pulled back modestly from the mark in tandem with EGB pressure on Schnabel (see Bunds). Yields lower across the curve, no overt flattening/steepening bias as it stands.


• Docket ahead is packed given the data scheduled adjustments for Thanksgiving. As such, we get weekly claims, monthly and quarterly PCE alongside numerous other figures.


• Data which will help to inform the view into December’s FOMC, with markets leaning towards a 25bps cut (60% chance) vs unchanged (40% chance) into the releases. While the monthly October Core metric is seen at 0.3% once again, given the hawkish internals from PPI in particular, the skew to the unrounded figure is up from the 0.254% in September.


• Data aside, the week’s supply docket concludes with a 7yr tap after well-received 2yr and 5yr outings earlier in the week.

Bunds: +56 ticks, 134.14

• Firmer in-fitting with USTs but were subject to a marked correction via a set of particularly hawkish remarks from ECB’s Schnabel.


• Schnabel, who sits on the Executive Board of the ECB, said that she sees only limited room for rate cuts. Furthermore, Schnabel estimates the neutral rate as being between 2-3% and while rates can be gradually moved to neutral, they cannot go lower. As a reminder, the Deposit Rate is currently 3.25% and markets price in just under 150bps of easing by Dec’25. Pricing which is at odds with Schnabel’s view on the neutral rate.


• Commentary which sparked an immediate pronounced hawkish reaction, weighing on EGBs across the board, lifting EUR and further pressuring equity sentiment. For Bunds, it sent them lower from 134.19 to 133.99 in an immediate reaction and thereafter to within a few ticks of the overnight 133.75 base.


• Since, the benchmark has lifted off worst and is approaching pre-Schnabel levels with newsflow light, the risk tone tepid and the docket ahead sparse into key US data (see USTs).

OATs: -1 tick, 125.43

• In the red, but only modestly so. Moved in tandem with Bunds on the above Schnabel commentary but is yet to lift off lows as their German peer has done.


• Focus remains on the domestic political situation, with PM Barnier yesterday afternoon remarking that if the government collapses there is “likely to be a serious storm and serious turbulence on the financial markets”.


• Commentary which has underscored the precipice the French gov’t and economy is on. Reflecting this, the OAT-Bund 10yr yield spread has printed a YTD high of 90bps. To levels not seen since 2012 when the spread was well in excess of 100bps.


• As it stands, we await an update on when Barnier will attempt to pass the budget and confirmation that this will be via Article 49.3. A measure which necessitates a confidence motion in the gov’t, a motion it looks like Barnier will lose, barring some last-minute change of heart from NFP and/or RN.

Gilts: +62 ticks, 95.48

• Outperforming. Unaffected by the Schnabel commentary. Specifics for the UK very light thus far and the docket ahead is equally sparse


• Gilts, on the open, acknowledged but were ultimately unreactive to remarks from Lombardelli late yesterday who among other points stated that the tight UK labour market remains a problem and is worried that services inflation remains above pre-COVID levels. Remarks which are in-fitting with her recent commentary.


• Given the lack of drivers, in a slim 30 tick range and while this is at the top-end of levels printed in recent sessions there is someway to go until we get to late-october levels above 96.50.

27 Nov 2024 - 10:05- Fixed IncomeData- Source: Newsquawk