EUROPEAN FIXED UPDATE: USTs contained into data, EGBs lift slightly on HICP, Gilts lag

USTs: -1 tick, 108-16+

• Flat, in a narrow 108-13+ to 108-20 band. Complex awaits US data incl. JOLTS and ISM Services alongside Fed’s Barkin (expected to reiterate remarks from 3rd Jan.) before 10yr supply.
• Last night’s 3yr auction was soft overall and weighed on USTs into settlement, though the benchmark remained clear of the 108-10+ low which printed around Trump pushing back on the WaPo piece.
• Into the above, the US yield curve is a touch steeper with the long-end seeing the most pronounced action thus far.
• Finally, as a reminder, the corporate and sovereign docket was packed to start the week and we remain attentive for a continuation of that today with numerous EUR- and GBP-denominated mandates already filtering through (see below).

Bunds: +2 ticks, 132.29

• Initially pressured in-fitting with the above and the tentatively constructive European risk tone ahead of Flash HICP. Before that, the December HICP Y/Y figure for France came in cooler than newswire consensus though hotter than the prior.
• As a reminder, the German figure on Monday was hotter-than-expected for the headline with energy-related base effects influencing.
• The EZ print was in-line with consensus for the headline and super-core, though the core did and services both ticked up slightly. Reaction was modestly bullish, perhaps as participants were preparing for a hotter-headline given Germany. Overall, it leaves Bunds flat on the session but within earlier parameters.
• As mentioned in USTs, supply is in focus today with Germany in the market with a Schatz auction which may well be weighing alongside EUR-denominated corporate announcements from the likes of Westpac, SocGen and Danske Bank thus far.
• On supply, ING expects frontloaded action and likely syndications to lift EZ gov’t bond issuance towards EUR 150bln for January, compared to EUR 180bln in January 2024.
• Elsewhere, no sustained pressure stemmed from the latest ECB Consumer Expectation Survey which saw one and three year inflation forecasts lifted alongside a cut to the growth outlook.

Gilts: -17 ticks, 91.78

• Underperforming modestly. UK specifics light aside from Construction PMI which spurred no move and a strong BRC Retail Sales report for December, the latter perhaps weighing on Gilts.
• Given the pressure, which has taken Gilts to a 91.68 trough just above last week's 91.65 base and the contract low a tick below at 91.64, yields are firmer across the curve with the 30yr above 5.21% and at its highest since 1998.
• The 10yr yield to a 4.64% peak, just below December’s 2024 best at 4.65%. Upside which continues to draw attention to Reeves’ limited headroom, headroom which is being eroded incrementally with every move higher in UK yields.
• Elsewhere, supply is in focus and also adding to the benchmarks downside with the World Bank announcing GBP-denominated mandate while the UK’s 2054 tap was softer than the prior but still robust overall, particularly given the week’s hefty schedule.