EUROPEAN FIXED UPDATE: JGBs lag slightly on further BoJ reports, Gilts gapped higher on Retail Sales

USTs: +1 tick, 108-20

• Modestly firmer, but yet to deviate significantly from the unchanged mark. Derived a modest bid from action across the pond as Gilts lifted on the back of soft Retail Sales metrics for December.


• Experienced some modest choppiness amid the BoJ related source reports this morning (see JGBs). Otherwise, US news has been somewhat light as markets wind down into a long-weekend with Martin Luther King Jr. Day on Monday; however, the inauguration of Trump means Monday is unlikely to be a typical holiday session.


• Today’s session features a handful of data points and the latest CBO Budget & Economic Outlook report, but is on paper at least set to be a lighter session than has been the case for the week thus far.


• At a 108-22+ peak but with ranges narrow and the low at just 108-16+, if the move higher continues then Thursday’s WTD peak resides at 108-24 while if downside emerges, i.e. from the constructive tone, then there is support at 108-05 and 108-01 before the figure.


• Yields are under modest pressure across the curve with action relatively broad based though there is a very slight flattening bias in play.

JGBs: U/C, 141.01

• Once again the modest underperformer on the account of more sources pointing to a BoJ hike in January.


• As it stands, it appears that a hike is all but cemented but is contingent on there not being a significant market move after Trump’s inauguration on Monday.


• Market pricing currently implies a 80% chance of a hike next Friday; aside from Trump’s inauguration, Japanese CPI hits in the session before the policy announcement.

Bunds: +17 ticks, 131.73

• Lifted at 07:00GMT on the UK data points (see Gilts for details), metrics which picked Bunds off their 131.50 base and helped lift them to a 131.88 session high over the course of the morning.


• Specifics for the bloc have been light so far; however, we have numerous speakers on the docket shortly with Centeno, Cipollone, Escriva and Nagel scheduled.


• The 131.88 peak is also a new high for the week with little by way of resistance until 132.13 from January 8th. To the downside, support resides at 131.30-33 and then the figure before 130.57 from Monday.

Gilts: +7 ticks, 91.49

• Gapped higher at the open by 27 ticks and then extended further to a 91.89 peak. A move which was driven by soft Retail Sales for December, metrics which complete the week’s set of dovish UK data and cement the view that February is a live meeting with a strengthening market bias towards a cut occurring.


• Note, market pricing didn’t really shift after the release from the c. 80% implied probability of a cut, with participants likely waiting for next week’s Flash PMIs, Trump’s inauguration and any fiscal update before beginning to cement their views.


• The 91.89 peak marks a WTD high and has Gilts on track to close the week out with gains of c. 250 ticks from the 89.00 open and 88.96 WTD low just below that.


• From a yield perspective, the UK 10yr is back down to 4.65% which is a much more comfortable level for the Chancellor; however, Reeves will be attentive to any inflationary implications from Trump’s inauguration and initial actions/comments, in case that spurs a rise in global yields

17 Jan 2025 - 09:54- Fixed IncomeData- Source: Newsquawk