EUROPEAN FIXED UPDATE: Contained UK/US trade pre-NFP while Bunds remain pressured

Analysis details (10:55)

• A comparably contained session overall thus far though Bunds are holding at the lower end of a 85 tick range in limited newsflow pre-NFP.


• Fresh updates have been slim this morning and mainly focused on the geopolitical front alongside further bank commentary/insights into next week’s ECB gathering, with the consensus seemingly pointing towards 75bp and market pricing implying around an 80% chance of this magnitude. SocGen, who look for 75bp, place much more emphasis on the hawkish remarks from multiple ECB officials and in particular Schnabel and Villeroy over the remarks from Lane; remarks which are open to interpretation, but seemingly take a more dovish angle vs above peers. Amidst this, SocGen continues to favour a bearish bias which points towards a flattening of the yield curve and, on the potential for incoming supply to lift long-end yields (as discussed in Thursday’s newsquawk European Fixed Update) this would be an opportunity to add to flatteners.


• Currently, the Bund low is circa. 10 ticks above 147.00, with yesterday’s 146.78 trough in focus and then 145.97/87 thereafter. From a yield perspective, the German curve is bear-steepening, lifting the 10yr back to 1.60% but shy of yesterday’s multi-month peak at 1.63%; for reference, the June 16th YTD peak is 1.92%.


• Given the ‘easing’ in yields from Thursday’s best, as participants await the US NFP release for fresh direction, the BTP-Bund spread has pulled back to the 230bp region from a brief ~245bp foray around the start of Thursday’s European session. Once again, domestic-specific updates have been slim as we await the September 25th elections.


• Leaving the EZ, action for both Gilts and USTs is very similar in that both benchmarks are essentially unchanged with developments slim as the UK awaits its new PM and the resumption of BoE commentary next week (Mann scheduled – note, she appeared on a podcast this week but added little) after the summer lull. For the US specifically, NFP – newsquawk preview available – is the session's only highlight though we remain attentive for any unscheduled Fed/gov’t commentary in its wake. As it stands the US yield curve is steeper, but only marginally so given USTs are contained.

02 Sep 2022 - 10:55- Fixed IncomeResearch Sheet- Source: Newsquawk