EUROPEAN FIXED UPDATES: Gilts lag after a noisy inflation series, USTs await 20yr supply & Minutes

USTs: -3 ticks, 108-24

• Marginally in the red but essentially flat when compared to EGBs and in particular Gilts. Docket ahead features 20yr supply, FOMC Minutes and remarks from Jefferson (voter) but with the latest building permit/housing start data first.


• Thus far, specifics for USTs are a little light and as such the benchmark is steady in a slim five tick overnight band between 108-22+ and 108-27. However, it is worth highlighting that long-end benchmarks, particularly the 20yr, trade a little heavy pre-supply.


• From the January Minutes we are attentive to anything around the language “clean-up” as Chair Powell described it, whereby a reference to inflation making progress towards the 2% target was removed. An adjustment Powell stated was not a policy shift. Additionally, for any insight into the FOMC’s thinking around the potential implications of tariffs. Note, since the Minutes market pricing has seen a hawkish shift driven by CPI, PPI and job metrics.

Bunds: -35 ticks, 131.75

• A softer morning for EGBs though not to quite the same magnitude as Gilts. Specifics for the bloc light with the focus still firmly on Ukraine and potential defense-related joint issuance.


• Bloomberg reports that the EU is working to provide Ukraine with additional military support as soon as possible while France has convened a second meeting to discuss the matter and European security on Wednesday, this event is expected to include NATO members who were not at the Monday meeting.


• Focus from this is on any indication as to the magnitude of spending, as this would provide a rough indication into the level of issuance (potentially joint borrowing) that markets may need to digest to fund support for Ukraine and general defence spending.


• Bunds find themselves at a 131.68 base having notched an incremental new WTD low. If the bearish action persists, then support features between 131.34-38 from late January.


• Ahead, aside from updates to tariffs and/or geopolitics, Bunds await supply with a 2035 auction scheduled. An outing which should be well received.

Gilts: -43 ticks, 92.18

• Underperforming after a noisy set of inflation data from the UK. Metrics which saw the headline come in hotter than expected though much of this was due to potential one-off factors around Transport and Energy.


• The all-important Services figure printed cooler than both the BoE and market expected. While there are caveats and positives to the release, this does not however change the overall picture from it of increasing price pressures. As such, Gilts gapped lower by 16 ticks to 92.46 before slumping further to a 92.12 base, downside which may also have been a function of heavy trading into supply.


• Given this, the UK 10yr yield has risen back above 4.6% and at its highest since late January. In-fitting with recent commentary, moves higher in the UK’s yield are viewed through the lens of the additional pressure it faces on the Chancellor’s likely already non-existent headroom.


• For the BoE, the data has seen a very slight hawkish shift to market pricing with 50bps of pricing only just implied by November while end-2025 easing has trimmed to -52bps from -54bps pre-release.


• The marginal shift may be a function of the noisy series and better-than-expected Services outcome offsetting the hot headline; additionally, participants may be assessing it in the lens of recent remarks from BoE’s Bailey who said data (referencing strong December GDP and a relatively hawkish labour market report) hadn’t significantly changed their outlook.


• Supply was robust though the cover came in slightly softer than the prior which sparked some very modest pressure in Gilts, though the move remained well within existing parameters.

19 Feb 2025 - 10:15- Fixed IncomeData- Source: Newsquawk