PORTUGAL AUCTION RESULTS: 10/13-year OTs

Continued U.S. tariff worry (albeit not generally focused on the UK) and the latest downbeat assessments of the UK labour market (REC-KPMG report on jobs and comments from Bank of America) provide background support for gilts today.

• Futures +18 at 93.38 (93.13-49).
• The short-term bullish cycle in the contract extended last week, initial support and resistance located at 92.50 & 94.35, respectively.
• Yields flat to 1.5bp lower across the curve, front end outperforms.
• 2s10s and 5s30s ~2.5bp and ~4bp below respective ’25 closing highs.
• BoE-dated OIS shows 61.5bp of cuts through-year end, with only modest (6bp) pricing of a follow up rate cut in March and the next 25bp decrease in Bank Rate fully priced through May. We believe a March cut is unlikely at this stage, but it may be a very close vote (potential for a 5-4 vote split is high).
• SONIA futures flat to +3.5, last week’s highs untested.
• Little of note on the UK calendar today, with comments from BoE Governor Bailey & MPC member Mann (after her dovish pivot) eyed on Tuesday.
• This week’s DMO issuance comes via a syndication of the new 4.50% Mar-35 gilt (we expect this to price tomorrow, pencilling in a size of GBP8.5-10.0bln) and GBP1bln of the 0.625% Mar-45 I/L line (Wednesday).

Bund futures are +3 ticks at 133.28, with today’s rally in European natural gas futures containing upside in the contract. There has been more activity in Bobl futures (~239k cumulative volumes) than Bunds (~234k) this morning.

• There was a fairly limited reaction overnight reaction to US President Trump’s latest tariff threats on steel and aluminium imports, with Bunds comfortably within Friday’s wide US-payrolls impacted range.
• A bull cycle remains in play in Bunds, with initial resistance at 133.73 (50.0% retracement of the Dec 2 - Jan 14 bear leg) before 133.86 (Jan 2 low).
• The February Sentix survey was stronger-than-expected at -12.7 (vs -16.5 cons, -17.7 prior), but wasn’t a market mover.
• German yields are up to 1bp higher at typing, with the curve lightly steepening.
• Light outperformance in 10-year peripheral bonds against Bunds, with European equity futures off Friday’s lows.
• Focus turns to ECB President Lagarde’s EU Parliament address at 1400GMT/1500CET.

• The focus in currency markets to start the week has once again been on tariff developments, amid early headlines from Trump that steel and aluminium tariffs would be announced. These headlines drove USD gains across the board, and the USD index briefly extended session gains to 0.37% at 108.44.
• However, given the US is not a major importer of steel, the initial move higher for the greenback has moderated through the remainder of the APAC and early European sessions. Price action is best summed up through the lens of USDJPY, which has benefited from both greenback sentiment and the swift recovery for major equity indices.
• The Japanese Yen remains broadly weaker on Monday, with USDJPY having briefly extended its recovery from Friday’s lows to around 150 pips, printing a 152.54 session high. Spot stands around 152.25 approaching the NY crossover.
• Overall, the recovery for Cross/JPY appears to be very much a correction to the broader developing theme we saw last week. Assisting the bounce, it is worth highlighting that Trump said on Friday he wants to end the trade deficit with Japan and that tariffs on the country were “an option”.
• Although well off the overnight highs of 1.4380, USDCAD remains higher on the session given Canada is exposed via both steel and aluminium exports to the US. Spot trades around 1.4330 last, up 0.27% from last Friday’s close.
• There are no tier one data releases so attention will be on ECB Lagarde’s EU Parliament address at 1400GMT. As a reminder, US CPI data is due Wednesday.