EU CREDIT SUPPLY: BBVA € Sr Non-Pref  €1.25bn 10Y ; €750m 3y FRN - Allocations

• Treasury futures extending lows at the moment with appr 20,000 TYH sold from 112-09 to 07.5 in the last couple minutes.
• The 10Y contract through Nov levels to 112-08.5 (-8) with focus on Nov 5 low of 112-07/Oct 7 low of 112-06.
• German Bunds mirroring declines. No obvious headline trigger, certainly not the latest re: large earthquakes in Japan.

Spillover from hawkish moves in the EUR short end have helped pull GBP 1y1y away from the base of its multi-week range and towards the upper boundary of the wedge formation that we have previously highlighted. November highs were tested earlier.

• Firmer salary indications from the latest REC report on jobs would have also had some hawkish feedthrough, even with the survey (on the whole) pointing to ongoing slack in the labour market.
• A reminder that we highlighted the need for fresh dovish catalysts if we were to see a move lower last week, with weakness in wider core global FI markets (largely centred on hawkish EUR repricing) providing the hawkish impetus in the time since.
• BoE-terminal rate pricing has moved back above 3.40% after threatening a clean break below 3.30% in recent sessions.
• Participants still need to be cognisant of spillover from hawkish moves in wider core global FI, particularly given the potential for relatively heavy received GBP positioning being built up over the past couple of months.
• To the downside, potential multi-week dovish domestic catalysts include dovish messaging alongside an almost fully discounted December BoE rate cut, further deterioration in labour market data and swifter than envisaged progress towards the Bank’s inflation target.

Fig. 1: GBP 1y1y Swaps (%)

Source: MNI - Market News/Bloomberg

A red tsunami warning has been issued for Iwate, the Pacific coast of Aomori and southeastern Hokkaido following a powerful earthquake off the coast of Aomori prefecture. A red warning indicates waves up to ~3m or more, with instructions to evacuate immediately from coastal and river areas due to the life-threatneing situation. Yellow and blue warnings, indicating a lesser degree of danger, have been issued for the eastern and southwestern coasts of Hokkaido, the west coast of Aomori, Miyagi, and Fukushima prefectures.