EUROPEAN FIXED UPDATE: Continuing to pullback from Monday's largely tech-driven highs, supply in focus

USTs: -8+ ticks, 108-28+

• Overall, benchmarks are pulling back this morning as tech/market sentiment looks set to attempt a slight recovery from the substantial pressure seen on Monday, with NVDA higher by around 5% in pre-market trade. Furthermore, strong SAP earnings have assisted in the European morning though the name is only modestly higher; see equities for more.


• Supply the scheduled point of focus for the session ahead. Follows on from mixed auctions on Monday where the 2yr tap was a soft auction but was followed by the 5yr which experienced a much better reception. Today, USD 44bln of 7yr Notes are on offer after a 2yr FRN sale.


• Aside from supply, market focus is split between continuing to digest the DeepSeek fallout, awaiting any further tariff announcements from Trump and/or his officials and of course counting down to Wednesday’s FOMC which is expected to see a hold with the guidance key.


• As it stands, USTs are softer to the tune of c. 10 ticks at a 108-25+ low, continuing the fade from Monday’s 109-12 high that printed just before that session’s US cash equity open. If the pullback continues, then the week’s open is at 108-16+ before 108-07+ from last Friday.

Bunds: -17 ticks, 131.46

• Pulling back in tandem with the above though magnitudes are slightly more contained today on account of Bunds, relatively speaking, paring more of Monday’s upside in that session than USTs managed to do.


• No reaction to the latest ECB Bank Lending Survey or Germany’s BDI Industry Association forecasting a domestic output contraction in 2025. From the ECB, the survey highlighted that housing loan demand is rebounding though demand from firms remains weak while credit standards tightening for firms in Q4, due to higher perceived risk levels.


• The docket ahead for the bloc is light, as such we continue to await any developments around the broader macro factors mentioned in the above section. Thereafter, attention for the bloc turns to Thursday’s ECB where a cut remains fully priced, -26bps implied.


• For Germany specifically, a new 2027 Schatz is set to be sold this morning. Recent history for Schatz auctions has been solid, however a number of technical failures did occur in 2023 and particularly for new issues.


• At a 131.42 base vs Monday’s 132.14 high, as such Bunds are back to within touching distance of Monday’s 131.38 opening level/trough. If this is breached, support comes into play just below at 131.34 before more substantial support at 131.00.

Gilts: -18 ticks, 92.24

• Echoing the above, at a 92.13 trough vs Monday’s 92.68 peak. A low which brings Gilts comfortably below the week’s 92.32 open and at an incremental fresh low for the week.


• Docket ahead features the introduction of a new I/L, which should be well received though of limited pertinence to the broader benchmark’s price action this morning.


• Elsewhere, PM Starmer and Chancellor Reeves have met with various UK business executives today in order to pitch the growth plan that is set to be unveiled by the Chancellor on Wednesday. Additionally, the PM & Chancellor are to provide Cabinet with a preview of these plans this afternoon. As such, we remain attentive to any leaks from the meetings.


• Speaking to Bloomberg after the meeting with business leaders, PM Starmer made clear that the government's priority is growth. Additionally, he announced that an in-person meeting has been agreed to with the US President.


• If the current pressure continues then support factors at 92.00 before 91.80 and then a cluster of recent lows between 91.45-66.

28 Jan 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk