BONDS: EGBs-GILTS CASH CLOSE: Slight Retreat As OATs Underperform
Jan-16 17:19
EGBs and Gilts retreated modestly to conclude the week.
- Core European FI yields had edged higher in early trade before the move accelerated in the early London afternoon.
- Bunds/EGBs saw pressure from a rise in natural gas prices, then hit an air pocket as US President Trump appeared to suggest that he would not be nominating his chief economist Kevin Hassett to be the next Fed Chair (he had been seen as the most dovish possible candidate).
- Treasury yields sold off, dragging EGBs/Gilts with them into the weekend. Both the German and UK curve bellies underperformed on the day.
- For the week, the German curve twist flattened (2Y yield +0.4bp, 10Y -2.8bp) while the UK's was largely flat (2Y yield +2.7bp, 10Y +2.6bp).
- Periphery/semi-core EGB spreads were little changed. OATs underperformed on political uncertainty: after cancelling budget debates scheduled for Friday and Monday, French PM Lecornu is due to speak by end-day on the government's decision on how to pass a budget in the face of opposition.
- Potential sovereign ratings reviews after the cash close include Fitch on the Netherlands and both Morningstar DBRS and Scope on the EFSF and ESM.
- Next week's scheduled highlights include the latest UK inflation and labour market data.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.3bps at 2.111%, 5-Yr is up 1.8bps at 2.453%, 10-Yr is up 1.6bps at 2.835%, and 30-Yr is up 1.6bps at 3.42%.
- UK: The 2-Yr yield is up 0.1bps at 3.671%, 5-Yr is up 1.3bps at 3.873%, 10-Yr is up 1.2bps at 4.4%, and 30-Yr is up 0.9bps at 5.135%.
- Italian BTP spread down 0.6bps at 61.9bps / French OAT up 0.8bps at 68.2bps
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US TSYS/SUPPLY: Preview 20Y Bond Auction Re-Open
Dec-17 2025 17:18
Tsy futures remain modestly weaker (TYH6 -3 at 112-13.5 vs. 112-09 low) ahead of the $13B 20Y bond auction re-open (912810UQ9) at 1300ET, WI is currently at 4.797%, 9.1bp cheap to last month's tail.
- November auction recap: Treasury futures showed little reaction (TYZ5 +1 at 112-26) after $16B 20Y Bond auction (912810UQ9) tailed slightly - drawing a high yield of 4.706% vs 4.702% WI at the cutoff; 2.41x bid-to-cover vs. 2.73x prior.
- Peripheral stats: indirect take-up retreated to 59.47% vs. 63.63% prior; direct bidder take-up 29.15% from 26.33% prior; primary dealer take-up rose to 11.38% vs. 10.04% prior.
US 10YR FUTURE TECHS: (H6) Bear Threat
Dec-17 2025 17:11
- RES 4: 113-09 76.4% retracement of the Nov 25 - Dec 10 bear leg
- RES 3: 113-00+ 61.8% retracement of the Nov 25 - Dec 10 bear leg
- RES 2: 112-27+ High Dec 5
- RES 1: 112-22+/23 High Dec 16 and 50-day EMA / High Dec 11
- PRICE: 112-13+ @ 17:04 GMT Dec 17
- SUP 1: 111-29 Low Dec 10 and the bear trigger
- SUP 2: 111-19 1.236 proj of the Oct 17 - Nov 5 - 25 price swing
- SUP 3: 111-11 1.382 proj of the Oct 17 - Nov 5 - 25 price swing
- SUP 4: 111-00 Round number support
The short-term condition in Treasuries is bearish and near-term resistance points remain intact. A continuation lower would refocus attention on key support at 111-29, the Dec 10 low. Clearance of this level would confirm a resumption of the bear leg and open 111-19, a Fibonacci projection. On the upside, a clear breach of 112-23, the Dec 12 high, would instead strengthen a short-term bull cycle.
OPTIONS: Larger FX Option Pipeline
Dec-17 2025 17:09
- EUR/USD: Dec19 $1.1500(E3.0bln), $1.1650(E1.2bln), $1.1675-80(E2.7bln), $1.1700(E1.2bln), $1.1750-60(E4.2bln), $1.1785-00(E4.8bln), $1.1850(E2.0bln), $1.1900(E2.0bln), $1.2000(E3.2bln); Dec22 $1.1675($1.3bln), $1.1700(E1.3bln), $1.1815(E1.0bln)
- USD/JPY: Dec19 Y155.00($2.2bln), Y156.00($1.2bln); Dec23 Y156.00($1.2bln)
- EUR/GBP: Dec19 Gbp0.8800(E1.3bln), Gbp0.9000(E1.4bln)
- AUD/USD: Dec19 $0.6675(A$1.1bln), $0.6700(A$1.6bln)
- AUD/NZD: Dec19 N$1.1300(A$1.1bln)
- USD/CAD: Dec19 C$1.3800($940mln), C$1.3825($1.8bln), C$1.3900($1.7bln), C$1.3950($1.2bln), C$1.4000($1.5bln)
- USD/CNY: Dec19 Cny7.3000($1.1bln)
