EUROPEAN FIXED UPDATE: Benchmarks pullback from yesterday's Treasury-induced upside after a brief foray higher in APAC trade on Trump's tariffs

USTs: -7 ticks, 110-10

• Softer, pulling back modestly from the rally seen on Monday after Trump’s Treasury Secretary nominee. As such, the yield curve is bear-steepening (vs bull-flattening on Monday) though there is some way to go for yields to recoup lost ground.


• By extension, while USTs are lower by a handful of ticks, we remain closer to the 110-18 WTD peak than the 109-27 trough from Monday, with today’s base at 110-09 thus far. Got as high as 110-17+ overnight, in reaction to the Trump tariff announcement.


• Main updates have been from Trump overnight with the President-elect announcing tariffs on Canada, China and Mexico; it remains to be seen whether this is an early negotiating tactic by Trump or the beginning of his touted tariff agenda.


• Docket ahead is devoid of Fed speak on Thanksgiving week though we do get the FOMC Minutes. From the account we look to any insight around the balance of risk on inflation and the labour market; however, recent commentary and data may see the release judged to be somewhat stale.


• Elsewhere, the data docket has November Consumer Confidence and Richmond Fed alongside the release of October’s New Home Sales.


• More broadly, we await any development on the geopolitical front with Israel’s Cabinet Meeting on the Lebanon ceasefire at 15:30GMT.

Bunds: -6 ticks, 133.54

• Modestly softer on the session, narrative much the same as USTs with the benchmark pulling back a touch from Monday’s gains.


• Thus far, Bunds down to a 133.43 trough with after printing an incremental WTD peak early doors at 133.71, a peak seemingly driven by the Trump tariff announcement overnight. While they are modestly in the red, they remain comfortably clear of the 133.06 base from Monday.


• Docket ahead headlined by supply with Italy and Germany due amid a number of ECB speakers from both sides of the dove-hawk spectrum. Thus far, de Guindos gave a lengthy interview in Finnish press remarking that developments into the December meeting/forecasts point to growth remaining fragile.


• Most recently, Villeroy spoke on the potential impact of Trump policies but added little to change the narrative.

OATs: -7 ticks, 125.53

• Substantial focus on France as markets digest the commentary from Le Pen yesterday around her, as it stands, not being willing to support Barnier’s budget.


• If this proves the case then there would undoubtedly be a widening of the OAT-Bund yield spread which is currently around the 81bps mark; as Le Pen objecting to the budget would, if the far-left also joined (as expected), see Barnier’s gov’t lose the associated confidence motion and see the gov’t collapse.


• Such a collapse would leave Macron with very little time to find an acceptable replacement and get a new budget bill agreed on and brought back to parliament.

Gilts: -36 ticks, 94.80

• Softer, echoing Bunds and Gilts. Specifics for the UK fairly light after remarks from Chancellor Reeves overnight/Monday where she reiterated that there will be no more tax increases on UK businesses in future budgets.


• At a 94.78 trough, having faded from a 95.09 peak in-fitting with action in fixed more broadly.


• So far, we have had books open and since close on a 1.25% 2054 Gilt syndication; as it stands, demand in excess of 62bln with guidance set at 4bps over the 2055 benchmark. Books opening did coincide with some modest pressure in Gilts, though updates since have had no discernible impact.

26 Nov 2024 - 10:10- Fixed IncomeResearch Sheet- Source: Newsquawk