EUROPEAN FIXED UPDATE: Complex awaits US NFP and the ECB Neutral Rate bulletin

USTs: +1 tick, 109-19

• Flat. Awaiting NFP and, potentially more pertinently, the benchmark payroll revisions. Firstly, the pace of payroll additions is expected to ease towards recent averages with consensus looking for 170k; though, hurricane, wildfire, cold weather and industrial factors could all impact and weigh on the headline.


• Proxies for the survey period have, by and large, been constructive with ADP for instance surprising to the upside.


• However, this release has more uncertainty than usual because of the benchmark revisions. As a reminder, the revisions were provided in a chaotic and delayed fashion in August and had a preliminary revision of -818k over the 12-months to March 2024 which pushed the average monthly read down to 178k from 246k.


• A release which showed the labour market wasn’t performing as well as thought and saw a dovish shift to market pricing.


• Into the release, USTs hold in a particularly narrow 109-13+ to 109-20 band with yields mixed and the curve itself a touch flatter.

Bunds: +7 ticks, 133.48

• A contained start to the day with overnight specifics for the bloc a touch light. Early doors, Destatis posted much better than forecast German export data for December, though the majority of this upside was to the US and worth keeping an eye on ahead in the context of potential Trump tariffs.


• No reaction to this data though, despite a modest move in the Dax future at the time.


• Bunds find themselves at the top-end of 133.29-49 band which is entirely within Thursday’s 133.13-61 parameters. No reaction to commentary from ECB’s Lane or de Guindos this morning, who both spoke on inflation.


• Furthermore, Lane also previewed and caveated today’s anticipated bulletin, due at 12:00GMT, by saying it is best not to focus too much on the neutral rate. Remarks which are possibly a function of the Chief Economist not wanting markets to base too much of their policy expectations on a rate (or more likely a band/range) that is theoretical and a vague estimate at best; as a reminder, the Lane has previously stated that there are at least nine factors which would need to be assessed to determine a neutral rate.


• Ahead of the release it is worth revisiting remarks from recent officials on where they think the Neutral Rate is, to surmise: Lagarde 1.75-2.25%; Schnabel 2.0-3.0%; Rehn 2.2-2.8%, Villeroy & Stournaras around 2.0% and Centeno >2.0%.

Gilts: +1 tick, 93.49

• Contained with specifics light post-BoE and as the fixed complex is focussed on upcoming events from the ECB and US BLS.


• As such, Gilts are pivoting the unchanged mark in a 93.06-93.49 band. The benchmark opened lower by 34 ticks and then slipped a handful further to that low before finding its feet and returning to flat, where it has largely remained since.


• Nothing on the docket for today though the weekend may prove more interesting as we may see sources and/or statements on Thursday’s reports that PM Starmer is looking into substituting Reeves for Cooper as Chancellor.

07 Feb 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk