EUROPEAN FIXED UPDATE: Gilts gap lower and hit 89.00 but have since pared into an imminent parliamentary question, hefty European supply well received

Gilts: -48 ticks, 89.74

• No respite at the open with Gilts gapping lower by 78 ticks and then extending to a 89.00 low, which of course marks yet another contract trough. Amidst this, the UK 10yr yield extended by 10bps to a 4.925% peak.


• Since, Gilts have pared much of this downside and have at times been back within reach of the 90.00 mark, though still markedly in the red, as such yields are off highs with the 10yr around 4.85%.


• In terms of commentary this morning, attention is on an interview with PIMCO’s Beck-Friis from late-Wednesday during which he remarked that they still like Gilts with much of the yield move US-led.


• CapEco’s Gregory, on Wednesday’s moves, remarked that the action has been sufficient to more than erase the Chancellor’s headroom under current rules with the Treasury on track to breach it by nearly GBP 1bln.


• In the immediacy, an urgent question has been granted in parliament today to discuss the “growing pressure of borrowing costs on public finances”; the question will be heard around 10:30GMT and while Chancellor Reeves should theoretically be there to respond, it remains to be seen if that will be the case.


• Further out, we await the March 26th OBR forecasts around growth which could see the 2% 2025 view downgraded following the poor performance at the end of 2024. A downgrade would further trim fiscal space. In the meantime, the Chancellor is reportedly looking at spending cuts instead of tax hikes if required to restore fiscal space, via Sky News.


• Elsewhere, the BoE next meets on February 6th and pricing currently implies 15bps of easing; note, Breeden is due to speak later today on monetary policy. Fitch reviews the UK’s sovereign rating on February 28th (AA-) followed by S&P on April 11th (AA) and Moody’s on May 23rd (Aa3).

USTs: +3 ticks, 108-07

• Just about in the green, a light data docket on account of the Federal Holiday for former President Carter though we still get December’s Challenger Layoffs.


• Despite the lack of data and potentially quieter conditions stateside we have numerous Fed speakers due with text releases and subsequent Q&A’s expected from Barkin, Bowman, Collins, Harker & Schmid today.


• At the mid-point of a 108-05 to 108-11+ band which holds at the upper-end of Wednesday’s 107-28+ to 108-10+ parameter. Amidst this, yields are lower across the curve which is a touch flatter thus far.


• Yesterday, USTs stabilised after a strong 30yr to round off an otherwise tepid week of US supply while JGBs also benefited overnight from their own auction, but have generally been under pressure given broader action and on firmer than expected wage updates.

Bunds: -25 ticks, 131.47

• Pressured having moved in tandem with Gilts in the early morning, and since rebounded off 131.34 lows.


• EGBs generally, and particularly OATs, heavy into supply with Spain and more pertinently France in the market. The Spanish auction was somewhat mixed with nearly the full amount sold though some of the lines saw weak demand.


• Following the Spanish results a bout of modest pressure was seen in EGBs, with Bunds trimming by around 15 ticks and back towards initial lows.


• Thereafter the French outing saw almost all of the 11-13bln guide sold with demand slightly softer than the priors for some lines but strong given the size on offer, a packed January supply docket globally and recent market action. As such, EGBs have bounced off lows but still remain in the red for the session


• This morning saw a rebound in German industrial data for November, while welcome, it doesn't change the narrative of a poor end-2024 for Germany. On this, the first insights come next Wednesday with the first estimated GDP release for the year. As a reminder, 2023 was -0.3% Y/Y or -0.1% when SA.

09 Jan 2025 - 10:15- Fixed IncomeEU Research- Source: Newsquawk