EUROPEAN FIXED UPDATE: Contained UST trade pre-NFP while EGBs/Gilts have been modestly pressured by Central Bank speech

Analysis details (10:04)

• Core benchmarks are little changed overall with USTs essentially flat on the session and yields holding within recent parameters as we count down to the NFP print (Newsquawk preview available). Data-aside, the US docket also features remarks from Fed's Collins (2022 Voter) who is the first scheduled Fed speaker post-FOMC/Powell and will be scrutinised for her views on a 'pause' after Powell's pushback and a potential slowdown as attention turns to the December gathering. Specifically, USTs are just two ticks shy of the unchanged mark at 109.30 which itself is at the mid-point of a tight circa. 10-tick range.


• In slight contrast EGBs are modestly firmer, with the Bund Dec'22 posting upside of circa. 50 ticks towards the top-end of 137.12-137.91 parameters. However, a speech from ECB’s Lagarde featured some slightly hawkish undertones with the President reiterating familiar lines that a recession would not be sufficient to tame inflation and adding that we are likely to see wages 'catching up' to some extent with higher inflation. A remark which can be looked at through the lens of second-round effects/wage-price spiral and thus erased around half of the aforementioned outperformance in Bunds.


• Within the UK the SONIA strip has a slightly dovish undertone as Chief Economist Pill on CNBC took the time to further pushback on market pricing alongside remarking that they believe the policy transmission lag to be roughly a year. Reminder, policy transmission was one of the factors cited by dovish dissenters Dhingra and Tenreyro in the statement on Thursday; for reference, the BoE began tightening policy in December 2021. Despite this, Gilts themselves are lower by circa. 20 ticks and are the current underperformer – action which is perhaps a function of Pill stressing that recent market turmoil has not distracted them from their key goals regarding shrinking the balance sheet via Gilt sales.

04 Nov 2022 - 10:04- Research Sheet- Source: Newsquawk