EUROPEAN FIXED UPDATE: Gilts lag on wage data while Bunds were lifted into the green by a poor set of ZEW metrics

USTs: -1 tick, 109-29

• Softer, but only modestly so, with US-specific newsflow somewhat light as we count down to a handful of Fed speakers today before CPI and Powell later in the week.


• Overnight developments focused on President-elect Trump as reporting around his expected cabinet began to intensify; overall, the take is very much that Trump’s second presidency will be able to hit the ground running and take action much faster than was the case in 2016.


• At the mid-point of a 109-24+ to 110-04 bound, yields firmer across the curve which is a touch flatter as it stands. Flattening which is in-fitting with the bias from Monday (reminder, cash trade was closed) but contrasts with the expected Trump + Congress narrative of steepening; overnight, Decision Desk called the House race for Republicans.

Bunds: +9 ticks, 132.60

• Numerous ECB members spoke thus far, though none have been particularly surprising or shifted the dial. Instead, focus is on the German political situation with initial reports via Bloomberg and more recently in the Rheinische post that politicians are looking for a February 23rd election with a potential no-confidence motion on December 18th.


• Bunds were under modest pressure, but lifted incrementally from a 132.24 base on geopols (see below) and thereafter more so on a soft set of ZEW metrics, with the recent bottoming out observed in other releases in recent days overshadowed by the Trump presidency and collapse of the German government.


• Benchmark now firmer on the session and have surpassed the 132.61 peak from Monday by a tick; now, as was the case on Monday, there isn’t much of note until the 133.00 figure itself.


• Note, both Bunds and Gilts (USTs unreactive at the time) saw a modest uptick on recent geopolitical updates that Israel is planning an imminent ground operation in Lebanon, reported via Sky News Arabia which was citing the Washington Post; however, the post from Sky News has since been deleted.

Gilts: -11 ticks, 94.21

• The lead from this morning’s data was mixed on face value, with the Unemployment Rate lifting markedly and wages sticker than thought ex-bonus and lifting on the broader figure. However, LFS data remains impacted by unreliability issues and the broad wage measure is affected by base effects from the public sector last summer.


• Nonetheless, the net read of the data is perhaps slightly hawkish given the sticker ex-bonus metric, a development which means the BoE is likely to keep rates on hold in December (market pricing moved slightly hawkishly, sub-20% chance of a Dec. move); thereafter, the first move is priced in March (-29bps) though the likes of ING look for February (-19bps).


• BoE’s Pill is partaking in a panel event on reversing global tightening, remarks thus far have had a hawkish-skew with reference to today’s wage data and underlying domestic inflation pressures. Furthermore, Pill said that additional rate cuts are to be a gradual process.


• Overall, the above has left Gilts as the underperformer and a few ticks below the 94.00 mark at worst. If the pressure continues, Monday’s low resides at 93.86 before 93.71 from Friday. However, as outlined in Bunds, they have picked up slightly on the latest geopolitical developments and a soft set of ZEW data for the EZ & Germany. No significant or sustained reaction to robust auction results a few minutes after the ZEW.

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