EUROPEAN FIXED UPDATE: Schnabel supports EGBs before a modest PMI driven pullback.

Analysis details (10:08)

• EGBs began Tuesday’s session on the front foot, with the impetus coming via remarks from ECB’s Hawk Schnabel that further hikes are now “rather unlikely” following the November inflation data. A remark which ultimately drove Bund Dec’23 to a 134.17 peak around 45 minutes after she spoke, eclipsing Monday’s 133.81 best with little difficulty. These remarks echoed the tone of Villeroy on Friday after November’s inflation release who said that absent any shocks, rate hikes are over; additionally, both officials have been slightly more explicit in their language when compared with de Guindos on Monday.


• Thereafter, EGBs have been gradually waning from that peak, but currently retain an underlying bid, as participants digest upward revisions to PMI data for the region. However, the accompanying inflation/price-related commentary has offset some of the initial bond downside on the metrics and growth commentary which points to a potential technical recession in Germany and possibly the EZ.


• Note, while USTs and Gilts have already switched to the March’24 contracts, Bunds continue to have slightly more activity in Dec’23, though both Bobl and Buxl contracts have seemingly already changed.


• Amidst this, Gilts have been moving directionally in tandem in the and perhaps assisted by the latest YouGov inflation findings with the benchmark lifting to a 97.27 session peak shortly after the resumption of trade given the earlier Schnabel comments. Thereafter, Gilts have also eased from highs as the region digested its own strong PMI revisions; but, accompanying commentary around prices remains hawkish as HCOB points out that “Squeezed margins from higher salary payments and rising prices for essential business services in turn contributed to the fastest increase in output charges across the service economy for four months." – an observation which speaks to the discrepancy between market pricing for the BOE and ECB, with 75bp and 140bp of total 2024 easing implied respectively.


• Finally, action stateside has been much more contained by comparison but directionally in-fitting with the above. Currently, USTs are holding at the mid-point of 110.10 to 110.18 parameters as we begin to tick off the handful of remaining key points for the year with today’s JOLT report (Oct) before Friday’s NFP (Nov) followed by CPI (Nov) and the FOMC decision on Tuesday and Wednesday respectively next week. In contrast with this time on Monday, the US yield curve is exhibiting relatively broad-based action but is ever so slightly heavier in the belly.

05 Dec 2023 - 10:08- Fixed IncomeData- Source: Newsquawk