GILTS: Front End Leads Sell Off On Firm PMIs, Less Than 40bp BoE Cuts Priced

• Reuters reports (link to full report) that the Japanese finance ministry “will likely reduce new issuance of super-long government bonds next fiscal year to around 17 trillion yen ($109 billion), the lowest level in 17 years”.
• They cite two government sources, “nodding to market fears of oversupply that have lifted yields for these notes to record highs.”
• The piece also notes the plan for next fiscal year will also hold off increasing 10Y JGB issuance, and the ministry “will consider reducing issuance of 20-, 30- and 40-year JGBs next fiscal year by 100 billion yen each per month”.
• “As a result, total issuance of super-long bonds next fiscal year would fall to the lowest since 2009, and below levels planned for the current fiscal year ending in March 2026."

Bloomberg Bonds:

• US Tsys: +0.06yr (small).
• EU Govies: +0.04yr (small).
• UK Govies: -0.03yr (non event).

MS Bonds:

• US Tsys: +0.09yr (average).
• EU Govies: +0.03yr (tiny).
• UK Govies: -0.04yr (non event).

Barclays FX:

• Their rebalancing model suggest a moderate USD buying against most Majors.
  They have a weaker signal in the USDJPY.
• Regarding Quarterly end, they only see a Weak signal for Dollar buying, slightly moderate vs the EUR and GBP.

Ahead of the midnight deadline on 23 December, the National Assembly and Senate in quick succession passed a special law to ensure that taxes can continue to be levied, gov't debt can be issued, and public sector workers can be paid in the absence of a state budget for 2026. The special law was passed unanimously in both chambers, with only members of the far-left La France Insoumise (LFI) abstaining. The special law means that no new spending measures are allowed, and vacant positions in the public sector cannot be filled. To use the already-allocated funds from the 2025 budget, parliament must issue a decree to allow gov't departments to disperse this money

• The LFI have warned that the inability of the public sector to hire and the lack of new spending means the special law is intended to deliver austerity via the back door, something the gov't denies.
• Le Monde notes that in early January, an obstacle to swift agreement comes as "members of parliament will resume budget discussions based on the text adopted by the Senate. The 'funnel principle,' which only allows amendments directly related to the provisions of the text, limits the ability of members of parliament to revise the Senate's toughened version."
• PM Sebastien Lecornu will have to walk a fine line between ensuring enough fiscal restraint to get the conservative Les Republicains on board, while ensuring that the budget is not so austere that the centre-left Socialists cannot abstain (the only path for a majority in the National Assembly).