EUROPEAN FIXED UPDATE: Fleeting BoJ impetus with catalysts light elsewhere to begin a blockbuster week

Analysis details (09:49)

• Core benchmarks began the morning under modest pressure, with catalysts in European hours somewhat limited initially and the follow-through from Chinese deflation dissipating. However, the complex derived some modest impetus from a BoJ sources piece via BBG that officials see little need to exit NIRP in December. Overall, action is contained with the docket generally light today as we await Tuesday’s US CPI before numerous policy announcements from Wednesday onwards.


• Bunds are holding around 134.70 with nothing specific on the agenda today but domestic participants are focused on German fiscal talks as weekend negotiations on the 2024 budget ended without agreement. Coalition heavyweights are due to recommence talks later today. If Bunds move more in-line with Gilts then support stands at Friday’s 134.37 trough before the levels around the figure, while renewed dovish price action brings into play Friday’s Fib of 134.92 before the figure and then that session’s 135.46 peak.


• Once again, Gilts are the standout laggard as expectations continue to trim from dovish extremes ahead of Thursday’s BoE announcement, whilst PM Sunak braces for a crucial week - which includes a vote on the Rwanda bill and a grilling in the UK Covid inquiry. However, the move in futures is relatively minimal thus far with a downside of just 30 ticks, therefore Gilts are well within recent ranges and pricing continues to imply around three 2024 rate cuts.


• Finally, USTs are similarly contained, but with a very slight negative bias and modest upside at the short end of the curve - action which occurs without US-specific catalysts, but with participants cognisant of early US supply given Wednesday’s FOMC. To be clear, the current bear-flattening is very minimal with volumes also thin at the time of writing.

11 Dec 2023 - 09:49- Fixed IncomeEU Research- Source: Newsquawk