EUROPEAN FIXED UPDATE: Gilts continue to lag with USTs incrementally firmer into US CPI

USTs: +3 ticks, 109-16+

• Incrementally firmer. Specifics so far have been light with USTs coming under modest pressure overnight, to a 109-9 trough, on a soft 30yr JGB tap and above-forecast Japanese corporate good prices.


• Docket ahead is headlined by CPI, after which we hear from numerous Fed speakers with Williams the likely highlight.


• CPI will be used to determine if the recent rise in yields on a Trump-victory has been overdone at the short-end, with markets pricing a 65% chance of a 25bps move from the Fed in December. Into the release, short-end yields remain near highs though yields are off best across the curve which is marginally flatter.


• USTs at a 109-17+ peak, resistance some way off at yesterday’s 110-04+ best before 110-07+ from Monday. For reference, if pressure re-emerges later in the session then the contract low from last week is 109-07.

Bunds: -39 ticks, 131.90

• Softer, printed a 131.62 base in the early European morning with drivers at the time light. Since, the benchmark has been gradually making its way off that trough but is struggling to make real ground above 132.00; current high 132.08.


• Docket for the bloc is light, direction for fixed and markets generally likely to be dictated by US CPI and Fed speak thereafter. For Germany specifically, Chancellor Scholz is set to speak at 12:00GMT, remarks which follow him seemingly accepting calls for an early confidence-vote with December 16th touted. Updates on this light, aside from CDU's Merz (front-runner to be next Chancellor) saying the debt brake can be reformed, "the question is what for?".


• A handful of ECB speakers so far, the influential Villeroy remarked that he expects more rate cuts and the US election result risks lifting inflation. Recent Econostream piece has Kazaks saying sharp moves in rates should be avoided and economic activity remains within the confines of the baseline.


• If the upward move continues and Bunds lift into the green then resistance stands at 132.22, 132.61 and 132.74 from Friday, Monday and Tuesday respectively. A move lower brings 131.45, 131.26 & 131.24 into view from the start of November.

Gilts: -29 ticks, 93.53

• Once again the underperformer. Gapped lower as the benchmark caught up with overnight UST action and then extended further below yesterday’s 93.30 trough to a 93.19 base.


• If the move continues then support features at the figure before 92.55 and 92.53 from last week, the latter being the contract low.


• BoE’s Mann remarked that inflation has "definitely not been vanquished" and headline inflation is not informing the MPC whether underlying dynamics have been vanquished. The arch-hawk is also due to give remarks on Thursday, where a text is expected. As a reminder, Mann was the lone dissenter at last week’s meeting.


• DMO’s first tap of a new 2028 Gilt was strong with a cover over 3x, though both the yield and price tails were slightly elevated; no sustained reaction to the auction results.

13 Nov 2024 - 10:20- Fixed IncomeData- Source: Newsquawk