EUROPEAN FIXED UPDATE: Pressured into a packed week of supply with data adding to EGB downside

USTs: -6 ticks, 108-14

• Pressured following the downside seen last week post-data and as the region awaits a hefty and frontloaded supply schedule.


• Furthermore, JGBs influenced overnight with the contract to a fresh low after remarks from Ueda who stated that he plans to increase interest rates with continued economic improvements but added the timing of an adjustment is dependent on the economy and inflation.


• As it stands, USTs are at lows of 108-12, matching the 30th December base with support from the session’s proceeding at 108-11+ and then the 108-06+ contract trough.


• Given this, yields are bid across the curve which is a touch steeper overall and ahead of supply, Final PMIs, Factory Orders and remarks from Fed’s Daly though this isn’t likely to contain much on future monetary policy.

Bunds: -30 ticks, 132.33

• Softer, in-fitting with the above and as the region counts down to its own supply.


• Macro focus this morning has been on the Final PMIs, PMIs which were subject to upward revisions across the board sparking some modest pressure in EGBs. Within the commentary, the standout was Germany which experienced a “jaw-dropping” surge in costs, likely driven by wages which were up 9% in Q3 Y/Y.


• Furthermore, while most of the German State CPIs are scheduled for release later in the week after the mainland figure, the metric from Hesse came in much hotter than the prior for December Y/Y; which, if indicative, presents a further upward skew to the mainland numbers later today.


• Bunds are currently at a 132.22 low, a base which leaves just the contract trough at 132.00 from November as support. Given this, and in-fitting with US action, German yields are firmer across the curve though the short-end is leading thus far.

Gilts: -30 ticks, 91.93

• Underperforming into its own PMI metrics, which saw modest downward revisions and helped to lift Gilts slightly off their base, though the benchmark was unable to reclaim the 92.00 mark or by extension test the opening 92.02 high.


• The referenced initial pressure stemmed from a British Chambers of Commerce survey which reported that 55% of UK businesses intend to lift prices in the next three months (prev. 39%) amid tax increases and elevated wage costs.


• Action which has pushed Gilts to a 91.78 base, within reach of the 91.64 contract low from December. As such, the UK’s 10yr yield is back towards highs of 4.65% from end-2024, levels which continue to pressure Chancellor Reeves' headroom.


• On that, a piece in Oxford Economics has drawn attention with the desk noting that if borrowing costs remain high then Reeves' headroom will fall from GBP 9.9bln to GBP 3.5bln, reduced headroom which will increase the prospect of Reeves lifting taxes once again.

06 Jan 2025 - 09:50- Fixed IncomeData- Source: Newsquawk