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The bid in core FI has extended, with Bund futures having pierced key resistance of 129.55 (vs Nov 26 high) – currently +26 ticks at 129.60. In cash markets, 10-year Bund yields are now down 2.3bps to 2.714%, through trendline support drawn from the August 2022 lows (see chart).

As noted earlier, the pullback from recovery highs in e-minis, linked to U.S. President Trump’s latest comments on tariffs, have been the primary driver of this afternoon’s FI strength. We haven’t seen an obvious fresh catalyst for the move lower in benchmark yields over the last ~45 minutes.

10-year Treasury yields are now down almost 5bps on the session, narrowing the gap to last week’s 4.016% low. Meanwhile Gilt yields are down over 4bps to 4.314%, the lowest level since late-2024.

Figure 1: 10-year Bund Yields (Source: Bloomberg Finance L.P)

• Despite the USD staging a steady recovery through much of he European session, the pessimism surrounding the greenback has returned through US trade, with the timing of the turnaround matching closely with Trump’s first Monday outburst against the Supreme Court.
• Precious metal strength remains the cleanest expression of the latest tariff uncertainty, with spot gold recently extending the Monday rally to 1.75%, briefly printing at $5,200, while spot silver is up close to 3%.
• The Japanese yen returns to being the best performer in G10, with USDJPY slipping back to 154.50 from 155.05 recovery highs. The holding of support in the low 152’s has managed to keep a bullish trend condition in place for now, with 156.29 (Feb 10 high) representing the next meaningful topside level.
• Despite JPY’s recent appreciation following the lower house election, Goldman Sachs think JPY weakness is likely to resume, especially against CHF given relative correlations and domestic inflation dynamics.
• Morgan Stanley holds a contrasting view, stating that “while geopolitical concerns are leading to broad USD strength, the strong inflows to Japan equity from offshore investors as well as less concern about Japan's fiscal situation can continue to weigh on USD/JPY, in our view.”

The aforementioned pullback from recovery highs in e-minis, linked to U.S. President Trump’s latest comments on tariffs, pushes gilt futures to fresh session highs at 92.71. Bulls remain in technical control but are still short of key resistance at the January 14 high (92.95).

• Yields 1.0-2.5bp lower, curve flatter. 10s hit the lowest level seen since late ’24 at 4.327%, next downside level of note located at 4.30%, deepening the break below medium-term trendline support that took place last week.
• Spread to Bunds ~1bp narrower, close to 160bp.
• The short bucket APF sale from the BoE saw mixed metrics (strong cover and weak pricing, see recent bullet for more there).
• SONIA futures flat to +3.0, underpinned by the move further out the curve. BoE-dated OIS still prices ~49bp of easing through year-end, failing to move beyond 50bp of pricing in early trade this week.
• Late London morning comments from BoE dove Taylor did little for markets, as he generally reaffirmed his well-defined view.