EUROPEAN FIXED UPDATE: USTs inch higher while EGBs remain in the red

USTs: +3 ticks, 109-02

• A modestly firmer start to the session. Action for USTs was pronounced in the later part of the US session given FOMC Minutes, 20yr supply, Trump/tariff updates and a handful of speakers. Since, US-specific newsflow has slowed a touch and we are now largely awaiting further details on Trump’s latest remarks.


• In brief, the main mover from the FOMC Minutes was it showing that various participants believed it might be appropriate to pause/slow the balance sheet runoff given debt ceiling dynamics. A line which helped pare the dip that occurred after the soft 20yr tap. In addition to the balance sheet language, the overall signal that the Fed is in no rush to adjust policy led to bull-steepening with the long end driving action.


• From the Fed, Jefferson said they can take their time weighing the next move and Goolsbee said inflation is too high, once it comes down rates can follow.


• Trump outlined several new potential tariff points and for the most part we are now awaiting further details around the measures and/or what retaliation they may spark. One of the more notable comments from Trump was his constructive language on China, remarks which may be exerting some downward pressure on bonds generally.


• As it stands, USTs are holding toward session highs of 109-04+ having eclipsed yesterday’s 109-00 best, resistance features at 109-11 from Monday before 109-15 from last Friday. On the flip side, support factors between 108-21+ and 108-23+.


• The session ahead is also packed with numerous Fed speakers, an appearance from the Treasury Secretary on Business TV in addition to weekly claims; 215k expected vs prior 213k, data coincides with the BLS survey period.

Bunds: -4 ticks, 131.47

• In the red. Bear-steepened on Wednesday before lifting off worst in-fitting with Treasuries, a move which slowed in APAC trade but briefly recommenced early doors this morning to a 131.63 peak.


• Though, this proved fleeting with the constructive European risk tone, ongoing reassessment following Schnabel’s hawkish remarks on Wednesday and the implications of Trump’s latest rhetoric weighing. Given this, Bunds continue to bear-steepen with the German 10yr yield notching an incremental new 2.55% WTD peak.


• On Trump, the leads from it for the bloc are two-way. On one hand, EGBs will be feeling pressure from the potential increased inflation implications (higher yields) of any tariff action and retaliation. On the flip side, the potential hit to growth is lifting benchmarks (lower yields) given the prospect for front loaded ECB action; though, given the remarks from Schnabel yesterday, how much additional 2025 easing markets can expect is now even more uncertain.


• Amidst this, the language from EU’s Sefcovic around being prepared to reduce their tariffs on US autos as part of measures to prevent a trade war could have bullish (lower inflation) or bearish (less haven demand on tariff threat) implications for EGBs.


• The European morning has, thus far, been a little quieter than the late-US/APAC session was. The main scheduled events were supply from France and Spain, into which the benchmarks were trading in-line with Bunds Spain was strong but spurred no move while the record French offering saw a 5x cover for the 2029 line and the top-amount sold. Lifting OATs from a 123.00 low by 15 ticks, sending them just into the green for the session.


• Into the above US events and also remarks from ECB’s Makhlouf & Nagel, from which we look for anything on the points Schnabel touched on, Bunds find themselves just off lows in a 131.36 to 131.63 band which is entirely within yesterday’s 131.26-94 range.

Gilts: -10 ticks, 138.84

• Echoing EGBs. The arguments around tariffs are much the same. Specifics include confirmation that UK PM Starmer will be visiting the US next week to meet with US President Trump. Potentially of note, initially reporting around this intimated it could be a joint visit with French President Macron - updates since suggest this is not the case.


• Otherwise, UK specifics are light and we continue to await the views of the MPC on Wednesday’s noisy inflation series. No BoE speakers on the docket as it stands.


• Also at the lower-end of a 91.96-92.29 band which is, in-fitting with Bunds, entirely within Wednesday’s 91.91-92.48 range.

20 Feb 2025 - 10:15- ForexEU Research- Source: Newsquawk