EUROPEAN FIXED UPDATE: USTs at an incremental contract low, Powell ahead

USTs: -5 ticks, 109-08+

• A slightly softer start to the session with USTs at a fresh 109-06 contract low. Yields bid across the curve with the belly leading and a very slight flattening bias overall.


• Newsflow has focussed on Fed speak thus far, with remarks yesterday from a handful of 2025 voters, Musalem said recent info suggests the risk of inflation moving higher has risen while Schmid says it remains to be seen how much more they will cut.


• Docket ahead has PPI and IJC, which could spur reactions given the relevance for PCE and insight into the labour-side of the Fed’s mandate respectively.


• However, the sessions’ main focus points are Powell and then Williams; though, it remains to be seen what the officials will add given that it has only been a few days post-Fed, CPI was essentially in-line and the stance on Trump is largely waiting to see what he actually does.


• In a thin 109-06 to 109-13+ band, towards the low-end of this and given we are at a contract low attention is on yields with the 10yr at a 4.48% best nearing early-July resistance at 4.49% before 4.50% itself.

Bunds: -14 ticks, 131.70

• In the red but well off worst. Towards the 131.79 peak having bounced from an early 131.28 trough, a low which printed overnight when newsflow was light but seemingly following the lead from USTs which dipped a touch at the time.


• Since, the benchmark has bounced though again newsflow has been limited and we look to the second read of GDP & employment data shortly before the latest ECB minutes and thereafter remarks from Schnabel and Lagarde.


• Minutes which have been somewhat superseded by the US election and implications of a Trump-victory, as such the speakers take centre stage with Schanbel’s speech on “Reassessing Policy Tools for Current and Future Challenges” potentially the highlight.


• As it stands, ECB pricing has the odds of a 25bps move in December at 65% with the remaining 35% ascribed to a larger 50bps move, the above officials will be scoured for any clues into this dynamic.


• While Bunds themselves remain in the red and long-end yields inch higher, short-end yields are pressured and a touch lower with the 2yr back below 2.15% and the curve steepening in continued anticipation of ECB frontloading. If the above speakers don’t provide fresh insight into this, then next week’s Flash PMIs might.

Gilts: -33 ticks, 93.13

• Underperforming, holding above the 93.00 mark currently but did go as low as 92.97 just after the open. If the move continues, then the contract low from earlier in the month at 92.53 comes into view.


• Specifics for the UK are somewhat light, aside from a lot of press focus on Reeves’ upcoming speech on pension reform; on the subject of speakers, BoE’s Bailey is also on the Mansion House docket but before that we expect a text release from Mann. As a reminder, she was her usual hawkish self in comments on Wednesday.


• The UK curve is, similarly to Bunds, also steepening; however, the UK’s short end is firmer (unlike Germany’s) with the 2yr yield holding around 4.50%

14 Nov 2024 - 09:55- Fixed IncomeData- Source: Newsquawk