EUROPEAN FISCAL: Broadly Steady Developments In Q3 But German Expansion Looms

Treasuries have firmed throughout Asia and London trading, with assistance from JGBs paring previous losses and a dovish repricing in EUR STIR following Schnabel yesterday (despite her broadly clarifying pre-ECB meeting remarks). Year-end factors could also be at play. Today’s focus will be on a solid data docket before further issuance, the latter highlighted by the 5Y but with some added attention on bills after yesterday’s preference for longer-dated maturities. 

• Cash yields are 0.5-2.5bp lower, bull steepening with curves pulling back a little further off recent highs.
• TYH6 trades at session highs of 112-16 (+05) on tiny cumulative volumes of 125k.
• It reverses yesterday’s further losses which saw a low of 112-09+ (not troubling support at 112-06, Dec 16 low) but is only back at the low end of Friday’s range and is still a way off resistance at 112-21+ (50-day EMA).
• Data: Weekly ADP (0815ET), GDP Q3 (0830ET), Durable goods Oct prelim (0830ET), Philly Fed non-mfg (0830ET), Weekly Redbook retail sales (0855ET), IP/cap util Nov & Oct (0915ET), Conf Board consumer survey Dec (1000ET), Richmond Fed mfg Dec (1000ET)
• Coupon issuance: $70B 5Y Note - 91282CPR6, US Tsy $28B 2Y FRN - 91282CPG0 (1300ET). Yesterday’s 2Y tailed by 0.2bp and bid-to-cover slipped from 2.68 to 2.58, whilst last month’s 5Y also tailed by 0.2bp but with the bid-to-cover nudging higher from 2.38 to 2.41.
• Bill issuance: US Tsy $75B 6W & $50B 52W bill auctions (1130ET). Yesterday’s six-month offering was preferred to the three-month with Fed rate expectations potentially at play.
• Politics: Trump doesn’t have any public events scheduled

• On the commodity front, the trend structure in Gold is unchanged, it remains bullish and another fresh cycle high reinforces current conditions. The break higher confirms a resumption of the primary uptrend. The metal has traded through the psychological $4400.0 handle and this opens $4500.0 next, ahead of $4536.0, the 1.500 projection of the Oct 28 - Nov 13 - Nov 18 swing. Initial firm support to watch lies at $4259.9, the 20-day EMA. A pullback would be considered corrective.
• The trend condition in WTI futures remains bearish and short-term gains are considered corrective. MA studies are in a bear-mode position, highlighting a dominant downtrend. A key support and the bear trigger at $56.11, the Oct 17 low, has been breached. Clearance of this level resumes the downtrend and opens $53.77, a 1.764 projection of the Jul 30 - Aug 13 - Sep 26 price swing. Key short-term resistance to watch is $61.25, the Oct 24 high. First resistance is at $58.71, the 50- day EMA.

The Department for Environment, Farming and Rural Affairs published a statement confirming the inheritance tax relief threshold will rise to GBP2.5mn for farmers and businesses. DEFRA: "The reforms to agricultural property relief and business property relief mean that only a small number of estates with agricultural and business assets will pay additional inheritance tax." The change comes days after the publication of a report from Baroness Minette Batters, former president of the National Farmers' Union (NFU), regarding farming profitability, which stated many farmers were "bewildered and frightened" by the proposed changes. 

• As the BBC reports, "The report did not look in detail at the government's proposed changes to inheritance tax, which are set to apply to farm businesses worth more than £1 million at a rate of 20% from April 2026. But Baroness Batters said it was raised as the single biggest concern by almost everyone in the farming sector she talked to as part of the review."
• The issue had become a significant political headache for PM Sir Keir Starmer's Labour gov't. Farmers have mounted high-profile protests around the Houses of Parliament with tractors, disrupting central London and gaining significant media attention.
• The very nature of Labour's large Commons majority will also have put pressure on Starmer. Historically, the centre-left Labour Party has represented seats in urban areas, while the centre-right Conservatives have represented rural seats. However, the massive gains Labour made in the 2024 general election mean that more than 100 of its MPs represent rural areas. With many of these MPs sitting on small majorities, the loss of support among farmers and the broader rural community would imperil their (already vulnerable) seats even more.
• Opinion polling in the new year will be closely watched to see if the increased threshold does anything to win back support for Labour in rural areas.