EGBS: CASH CLOSE: Paring of Risk Off Open Gains, EZ HICP Next Focus Point
Feb-28 17:22
EGBs have moved off recent highs seen after a short-lived latest rally in spillover from negative US 1 GDP tracking, and indeed German 10s have recently touched session lows amidst narrow ranges.
- RXH5 trades at 132.99 (+ .10), close to recent session lows of 132.94 having pushed through the 133.00 seen after nationwide CPI data at 1400CET. That said, the day’s high of 133.46 marks a latest extension of the bull cycle that started Feb 19, after which lies 133.71 (Feb 5 high and a reversal trigger).
- EGBs more broadly are mildly firmer on the day, with most 2Y yields between 0-2bp lower on the day and 10Y yields between -1bp and +0.5bp.
- In 10Y space, OATs underperform with the OAT-Bund spread at 73.7bp (+1.2bp) widening back towards levels seen at the open prior to softer than expected French HICP inflation (at 0.9% Y/Y vs cons 1.1%).
- Peripheral spreads have tightened intraday though, with the BTP-Bund spread in particular back to 112.8bp (-0.1bp) having pushed easily above 115bp in early trading, aided by an almost 1% intraday recovery in the Euro Stoxx 50 to close -0.2% on the day.
- Next week sees early focus with flash February HICP for the Eurozone on Monday, with risks of it coming in at the higher end of our previous tracking of 2.1-2.2% Y/Y. The ECB is of course on Thursday, fully expected to cut another 25bps, whilst more broadly, defense spending deliberations will continue to have an impact and the Bundesbank’s debt brake reform on Mar 5 will also be watched.
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FED: Instant Answer Questions for January FOMC
Jan-29 17:19
The Instant Answers questions that we have selected for the January FOMC statement are as follows (due to be released at 1400ET):
- Federal Funds Rate Range Maximum
- Number of dissenters on size of rate move
- Any change to the Fed’s description of inflation?
- Any change to guidance on rates in sentence that references “extent and timing” of additional rate adjustments?
BONDS: EGBs-GILTS CASH CLOSE: Early Yield Drop Reverses On Higher Energy Prices
Jan-29 17:08
European core yields saw an early drop reverse late in the session, leaving them a little higher Wednesday.
- Bunds and Gilts strengthened after an overnight trade, in line with a US Treasury rally that kicked off late Tuesday after a solid 7Y bond auction.
- However, a rise in European natural gas prices to 15-month highs amid supply issues and lower temperature forecasts in the region, applied pressure on the space toward the cash close.
- Spanish Q4 GDP came in firmer-than-expected; UK Chancellor Reeves' policy speech was longer-term focused, with little in the way of short-term implications or market movement.
- The German curve bear steepened modestly, with the UK's bear flattening.
- Periphery EGB spreads tightened. OATs underperformed the rest of the space, with spreads widening rift amid discord between the French government and Socialists.
- Focus after hours is on the Federal Reserve decision and communications, and of course Thursday sees the ECB decision (a 25bp cut remains nearly 100% priced - MNI's preview is here). We also get Spanish January flash inflation data (MNI's Eurozone inflation preview went out today, PDF here).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.6bps at 2.278%, 5-Yr is up 1.6bps at 2.381%, 10-Yr is up 1.8bps at 2.583%, and 30-Yr is up 2.4bps at 2.804%.
- UK: The 2-Yr yield is up 2.1bps at 4.331%, 5-Yr is up 1.5bps at 4.325%, 10-Yr is up 0.8bps at 4.622%, and 30-Yr is up 0.3bps at 5.177%.
- Italian BTP spread down 1.6bps at 107.9bps / French OAT up 2.5bps at 74.6bps
EUROPEAN INFLATION: MNI Eurozone Inflation Preview - January 2025
Jan-29 16:59
We've just published our preview of the Eurozone January flash inflaiton round - PDF Analysis Here:
- The Eurozone January flash inflation round is split across two weeks, with Spain, France and Germany providing data on Thursday/Friday (Jan 30-31), before Italy and the Eurozone-wide prints cross on Monday.
- The data will set the tone for inflation developments through the rest of this year, with the annual basket reweighting taking place alongside regular annual price resets in several categories.
- The MNI median of sell-side forecasts points to headline at 2.4-2.5 % Y/Y (vs 2.4% prior) and core to remain at 2.7% Y/Y.
- Headline inflation is likely to be upwardly impacted by an acceleration in Brent crude and natural gas prices in January, while services inflation remains in focus for the core measure.
- The ECB are considered near-certain to cut rates by 25bps at its January 30 meeting, with a subsequent 25bp cut in March almost fully priced - but there remains uncertainty around the speed and magnitude of cuts beyond Q1, with inflation data a key input into those decisions.
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