EUROPEAN FIXED UPDATE: Bunds bounce off worst but remain over 300 ticks lower WTD, USTs await Payrolls & Powell

Bunds: +62 ticks, 127.64

• Firmer in a modest bounce from recent significant pressure. At best, Bunds have been to a 128.18 peak with gains of 116 ticks at best. A move which is likely a modest paring of recent extensive downside and also a function of the downbeat European equity risk tone.


• While posting significant gains on the session, the benchmark remains shy of the WTD 132.04 peak or the opening level of 131.71; as it stands, Bunds are on track to end the week with losses of around 350 ticks.


• Similarly, yields are lower across the curve but the 10yr remains almost 40bps firmer on the week at around 2.82% vs a 2.44% opening mark. The peak was 2.92%.


• Bunds in the morning got hit by a very soft Industrial Output report for January which printed outside of the forecast range and sparked immediate pressure of around 30 ticks in Bunds to the eventual 127.54 trough.


• A move which was potentially spurred by the soft Industrial data justifying the fiscal measures outlined by incoming Chancellor Merz earlier in the week; i.e. the soft data justifies the fiscal loosening and likely greater issuance that Merz's measures are indicative of.


• Nothing of note from the handful of ECB speakers this morning and while we await clarity on the mixed sources yesterday, which essentially underscore the uncertainty in the policy path, the main macro points ahead are Payrolls and Powell.

USTs: +4 ticks, 110-28+

• Firmer, but in a narrower 110-25 to 111-03 band. Benchmarks benefitting from the uptick in Bunds as discussed above, more sources pointing to the BoJ potentially remaining on hold in March (pricing has a 96% chance of no move implied) and mainly waiting for Payrolls & Powell.


• Updates which may dictate the benchmark’s near term performance and also the fortunes of yields, which are lower across the curve and incrementally flattening. While lower, the 10yr yield posts upside of a few bps on the week at the 4.26% mark vs a 4.34% WTD peak.


• Payrolls will draw potentially greater attention than normal, given the heightened focus on the US’ economic health after a string of tepid data points and the Atlanta Fed GDPnow for Q1 pointing to a marked contraction.


• After Payrolls, Fed speak begins with Bowman, Williams and Kugler due before Chair Powell and the commencement of the Blackout period into the March FOMC, for which markets currently ascribe around a 10% chance of a cut. Speakers who will be scoured for their view on easing or not in the meetings ahead in the context of US trade/tariff action and signs of a US slowdown.


• That aside, following the concessions on tariffs by Trump on Thursday we are keenly awaiting any fresh updates to this for/from Canada and Mexico in addition to and perhaps more pertinently anything relating to China.

Gilts: +20 ticks, 91.70

• Another session where the benchmark finds itself following suit with broader price action but caught between USTs and Bunds in terms of magnitudes.


• Currently back below the 92.00 mark but has been above the figure in a 91.73-92.13 band. Specifics for the region light with the initial bias a bullish one on account of the above and indeed Gilts opened higher by around 33 ticks.


• The UK schedule is light for the session ahead with the benchmarks fortunes likely to be dictated by US factors, as is the case for broader market action.


• From a yield perspective, the UK 10yr is back below the 4.70% mark vs a 4.79% peak on Thursday. While off highs, it remains elevated and adding further pressure to the fiscal outlook for the UK Chancellor into the fast approaching OBR forecast round.

07 Mar 2025 - 10:15- Fixed IncomeEU Research- Source: Newsquawk