EUROPEAN FIXED INCOME UPDATE: Bunds bolstered by soft PMI metrics

JGBs: +8 ticks, 139.32

• Supported overnight by BoJ Governor Ueda, remarks which more than offset any pressure from hotter-than-expected Japanese CPI. Ueda said that the BoJ stands ready to respond nimbly such as through market operations if markets make abnormal moves.


• On this, JGBs lifted from just under the 139.00 mark to a 139.76 overnight peak before paring around half of the move and settling around the 139.30 mark.

USTs: +2 ticks, 109-07

• Marginally firmer but only posting gains of a handful of ticks in rangebound/choppy trade with US-specifics so far somewhat lighter than has been the case in recent sessions. Overnight, USTs caught a bid alongside the discussed move in JGBs.


• Specifically, at the upper-end of a 109-03+ to 109-11+ band, eyeing the 109-15 peak from Monday. If pressure resumes, then support features at the figure and then 108-30+. Given this, yields are on the back foot with the long-end leading.


• Upside was also a function of the negative Wall St. risk tone as markets await clarity on tariffs and geopols. On this, Fed’s Kugler remarked that they need to wait to assess tariff effects and as it stands she believes the Fed “should hold the policy rate in place for some time”.


• Rates aside, Kugler said they will need to halt balance sheet shrinking “at some point”, while still above ample reserves. On this, Fed’s Musalem said that so far there are no plans to alter the drawdown.


• Ahead, while we await updates to the tariff and geopolitical narratives we get data via US Flash PMIs and then an appearance from Fed’s Jefferson (Voter) on Fed Communication, from this we expect both a text release and a Q&A.

Bunds: +35 ticks, 131.97

• Firmer, leading the EGB space. At the upper-end of a 131.56 to 132.20 band which has eclipsed Tuesday’s best but yet to approach Monday’s 132.58 WTD peak. To the downside, support resides at 131.30 and 131.26.


• Into the morning’s data Bunds were around 15 ticks off the above base and in the red. The French numbers hit first and came in softer than expected with the Composite at its lowest since 2023 and particular concern around the Services figures.


• A release which lifted Bunds to the session high. A move which then faded into the German figures, metrics that printed mixed vs market consensus but was much better than the French figures and internal commentary that things are “looking up” for manufacturing; metrics weighed on Bunds, though this was only modest and fleeting in nature.


• Most recently, the pan-EZ figure came in mixed vs consensus and spurred no real reaction; internal commentary highlights hope for Germany post-election though this is “offset by a relatively unstable situation in France and a US customs policy that is spreading uncertainty”.


• Ahead, from a EZ-perspective, we await a slide release from ECB Chief Economist Lane; from this, we are particularly attentive to his view on the recent speech from Schnabel, a speech which was hawkish even for the known-hawk.

Gilts: +4 ticks, 92.05

• Moving with the above but with magnitudes more contained into its own data. A release which didn’t really spark much of a reaction given it was quite mixed.


• Services came in marginally better than expected while Manufacturing missed and printed outside the forecast range leaving Composite in-line with consensus and only incrementally down from the prior.


• Internal commentary highlighted increasing signs of a stagflationary UK environment. Overall, the release doesn't give clear direction for the BoE MPC though it does speak to the divide between those looking for further easing and those who think the MPC should move more cautiously/gradually.


• Prior to the Flash PMIs, UK Retail metrics came in stronger than expected though the PNSB figures, while at a record surplus, actually posted a smaller surplus than the OBR forecast at the time of the October Budget; a ‘surplus’ which, given the OBR compare, isn’t as much of a welcome indicator for the Chancellor as it may appear on face value.


• Digesting all this, Gilts are in the green but much closer to the bottom-end of a 91.98-92.31 band. Ahead, the UK docket is light and as such we await further insight on broader macro drivers and various ECB/Fed speakers.

21 Feb 2025 - 10:00- Fixed IncomeGeopolitical- Source: Newsquawk