EUROPEAN FIXED UPATE: Benchmarks in the red ahead of NFP

USTs: -2 ticks, 108-04

• Softer, but lifting back towards the unchanged mark as the European risk tone deteriorates a touch.


• The benchmark came under modest pressure on the BoJ sources (see JGB section) this morning but otherwise action has been relatively minimal thus far as participants return from the Federal Holiday; in a slim 108-02+ to 108-09 band.


• The main event today is December’s jobs report, where the pace of payroll growth is seen easing for the month (in-fitting with the Fed’s assessment of “cooling gradually”) while the unemployment rate is expected to remain steady and wages seen cooling slightly M/M.


• Ahead of the release, UniCredit wrote that a stronger than expected report would likely push the 10yr yield above the current session high of 4.7%, remarking that a breach of this would “pave the way for a bolder move towards the 5% threshold”.


• Post-NFP, we get the prelim. Uni. of Michigan survey before remarks from Fed’s Goolsbee (2025 voter) who last spoke in December at which point on jobs he noted that employment is stable and they want to keep it that way and to do so rates need to “come down to something like neutral”.

JGBs: -19 ticks, 140.87

• Softer, hit by a Bloomberg sources piece that the BoJ is said to be considering increasing the inflation forecast for FY25 and intends to wait until the very last moment before deciding on increasing rates.


• An article which weighed on fixed generally and pushed JGBs below the 141.00 handle to a 140.84 session trough.


• As it stands, market pricing has around 11bps of tightening implied for the January meeting vs just under 9bps before the publication of the source report.

Gilts: -42 ticks, 89.71

• Gapped lower by 28 ticks and then slipped a touch further to an 89.71 base and has remained around that mark ever since. While pressured, the benchmark remains comfortably above Thursday’s 89.00 contract low but significantly shy of the 92.02 open from Monday.


• Nonetheless Gilts may, relatively speaking, take a bit of a back seat today with NFP on the docket and USTs in the driving seat as such. On recent action, BoE’s Breeden late-Thursday said that while they are monitoring the Gilt market the action has been orderly.


• On the point of NFP, a stronger-than-expected report could spur a hawkish UST reaction and apply further downward pressure to Gilts and by extension bring the 10yr yield back towards/above yesterday’s 4.925% peak; today’s high is 4.845%.


• Chancellor Reeves is, according to The Times, said to be working on a significant speech on growth in January and has requested the drafting of concrete measures to bolster growth. Overall, the tone of press reports remains that Reeves will look to cut spending rather than increase taxation in order to rectify any headroom issues at the time of the March OBR update.

Bunds: -34 ticks, 131.14

• In the red in-fitting with general fixed price action. Though, as the European risk tone deteriorates, EGBs have lifted off lows with Bunds attempting to return to the upper-end of a 131.07-131.37 band.


• While Bunds are lifting off lows, they remain markedly shy of Thursday’s 131.71 best and by extension highs from the proceeding sessions at 132.14, 132.44 and 132.57.


• Specifics light for Europe and as such direction has been sought from elsewhere, a narrative that will likely remain the case into NFP this afternoon.

OATs: -22 ticks, 131.37

• On Wednesday, Politico reported that the French Finance Minister has signalled to the left-wing parties (i.e. NFP) that they could be willing to discuss amendments to Macron's retirement age reforms.


• As such, while OATs are under pressure they are faring marginally better than peers on the hopes of such discussions leading to a political breakthrough and then the passage of required fiscal measures.


• However, it is worth noting that during the initial debate President Macron faced on increasing the retirement age the measure was regarded as a litmus test for France’s appetite to accept required fiscal reform; as such, any backtracking of the reform could be perceived negatively.

10 Jan 2025 - 09:50- Fixed IncomeData- Source: Newsquawk