US-RUSSIA: Bessent-US Ready To Ramp Up Or Wind Down Sanctions
Speaking to Bloomberg TV, US Treasury Secretary Scott Bessent says "If we need to, [we] will take off Russia sanctions", adding that the US is "ready for a ramp-up or wind down" of sanctions. His comments come as the EU is moving forward with its 16th package of sanctions on Russia. Permanent representatives approved the latest round - targeting Russian aluminium and its shadow shipping fleet - on 19 Feb, with EU foreign ministers set to give final sign-off on 24 Feb, the third anniversary of the full-scale invasion of Ukraine.
- As NYT notes, the unwinding of US sanctions could ease Russia's ability to conduct business abroad if US banks can facilitate transactions in US dollars. However, two-thirds of Russia's overseas assets are held in the EU, and there is little chance of a change in Brussels' stance on trade or energy purchases. The US pursuing a unilateral unwinding of sanctions on Russia would not have the same political leverage as a broader loosening.
- The potential for the US to unwind sanctions on Russia at the same time as the EU is implementing more restrictive measures comes as another signal of the widening and increasingly bitter divergence on the war in Ukraine between Washington, D.C., and European capitals. President Donald Trump's comments regarding Ukraine's Volodymyr Zelenskyy on 19 Feb led to the closest many European leaders have come to directly criticising the US president since he came to office one month ago.
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GILTS: DMO Consultations Also Factoring Into Bid/Flattening
To add to the recent bullet, a reminder that the minutes of yesterday’s DMO consultations with gilt market participants (released this morning) revealed that there was “GEMM support for "a reduction in the duration of conventional gilt issuance in 2025-26 relative to the current year [...] some attendees cited declining structural demand for gilts from the UK pension sector as a factor in their recommendation to reduce long issuance."
- This, coupled with the removal of hedging pressure surrounding the pricing of the syndicated tap of the Jan-40 line, is likely promoting the recent bid/cure flattening.
BONDS: Dragged Away From Lows By Gilts
The bid in gilts (covered in the previous bullet) seems to help wider core global FI markets off session lows.
- German yields now little changed to 1.5bp lower on the day, while U.S. Tsy yields are 2.5-5.5bp lower.
- Flattening biases also apparent on both curves.
- A reminder that Tsys are playing catch up after the observance of MLK day in the U.S. and resultant closure of cash markets on Monday.
GILTS: Firmer After Syndication Hedging Pressure Abates
Gilts outperform over the last 40 minutes or so, with pricing of this morning’s syndicated tap of the Jan-40 line now in the rear-view and any hedging related pressure passing.
- The offering attracted record demand.
- Futures to fresh session highs above 91.80 at typing, bulls eye resistance at the Jan 17 high (91.96).
- Yields now 2.0-2.5bp lower across the curve, with the long end now outperforming after some modest curve steepening ahead of the supply
