EUROPEAN FIXED UPDATE: US yield curve steepens, JGBs outperform post-Ueda, Gilts lag pre-BoE

USTs: -5 ticks, 108-28

• Continuing to falter post-FOMC. At a 108-26+ trough, just below Wednesday’s 108-27 base and at a contract low.


• Participants continue to digest the FOMC, which was hawkish in nature (full summary available on the headline feed) and points to just two 2025 cuts; a projection which could be revised further when all members account for the policies of the incoming Trump presidency (Powell implied that some members did and some did not account for this).


• As it stands, markets price in just 35bps of 2025 easing for 2025 vs 73bps before the FOMC.


• Ahead, we look to the US quarterly PCE and GDP before Friday’s monthly metric ahead of blackout lifting and Fed speak potentially resuming (though, no one is scheduled just yet). Amidst this, the 2yr, 5yr, 7yr announcement before a TIPS auction.


• Given the above, the US yield curve is steepening and markedly so with the 10yr at a 4.53% peak, its highest since May when 4.69% printed, while the short-end is under pressure and the 2yr is pulling back from a 4.36% peak.

JGBs: +21 ticks, 142.35

• Overall, the BoJ statement itself was as expected with rates held in an 8-1 vote with Tamura advocating for a 25bps hike. A statement which spurred minimal reaction in JGBs.


• Thereafter, the presser from Ueda had a net dovish skew with the Governor wanting “one more notch” on the wage data front before deciding on tightening. Commentary which seemingly points us to the Spring Shunto wage talks and as such places the emphasis on the March meeting for the next hike i.e. skipping January.


• Remarks which spared a dovish reaction in JGBs (and marked JPY pressure, see FX), with JGBs lifting from just above the 142.00 mark as Ueda began to a 142.51 peak.

Bunds: -42 ticks, 134.20

• Pressured, in-fitting with USTs as outlined above. Specifics for the bloc have been light, with focus thus far and ahead firmly on external drivers.


• Bunds down to a 133.79 trough overnight, for reference 132.00 is the contract low from November, but have since bounced back above 134.00 to a 134.23 peak taking impetus from JGBs.


• Though, Bunds yet to attempt a recovery back to the breakeven mark. For reference, action has been fairly broad based across EGBs and as such spreads haven’t moved significantly within the EZ.

Gilts: -80 ticks, 92.03

• Pressured and the current underperformer. Gapped lower by 69 ticks before moving below the 92.00 handle to a 91.87 base, which is another contract low.


• Action which has further trimmed implied 2025 easing to just 46bps, from above 50bps on Wednesday and 69bps on Tuesday pre-wage data.


• For the BoE, an unchanged announcement subject to dovish-dissent from Dhingra is expected. Thereafter, attention turns to any forward guidance from Bailey and to what extent his recent language (which reflected market pricing at the time) for a cut per quarter is revised by.


• Note, as mentioned in recent commentary, recent fixed income pressure is lifting yields and bringing the UK 10yr yield ever higher, peaked at 4.65% today thus far, which surpasses the post-Truss high at 4.63% and approaches the 2023 peak at 4.75%.


• Upside which continues to trim Chancellor Reeves’ already limited fiscal headroom and means that the March 26th fiscal statement/OBR forecasts could be a tricky affair for the Chancellor; with talk in UK press recently around her being forced into an emergency budget on this date, contrasting with her guidance for just one fiscal update per year in the Autumn.

19 Dec 2024 - 10:10- Fixed IncomeEU Research- Source: Newsquawk