EGBS: Earlier Rally Fades, ECB Speakers Consistent With Market Pricing
Jan-22 10:40
The earlier rally in major EGB futures has largely faded, with Bund futures now little changed today at 131.94, down from a session high of 132.22. The 20-day EMA at 132.37 remains a key resistance level in Bunds.
- OAT and BTP futures led the morning rally, seemingly driven by the bid in European equities.
- Several ECB policymakers have provided comments from the Davos forum, headlined by President Lagarde. However, comments were largely consistent with current OIS pricing, limiting the market reaction.
- Books for Spain’s 10-year Obli syndicated tap are in excess of E150bln, while the spread for Finland’s new 20-year RFGB has been set. Germany will hold a 15-year Bund auction at 1030GMT/1130CET.
- German cash yields are little changed, with a light twist steepening bias seen.
- 10-year peripheral/semi-core spreads to Bunds have tightened, as European equities rally. OATs outperform, though meaningful OAT/Bund tightening below 75bps may be limited by medium-term fiscal/political risks.
- The remainder of today’s macro calendar is light, with focus on ECB speakers and any tariff-related headlines from the US.
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BONDS: Bunds Off Lows On Tariff Worry & Downtick In Oil, OATs & Gilts 1bp Wider
Dec-23 10:39
Core global FI markets off session lows, with oil ticking lower and short-term technical levels holding in German paper.
- Continued focus on potential U.S.-China trade tariffs likely factored into the recovery as well, given the readthrough for European growth.
- Core global FI yields still higher on the day.
- Bund futures last -18 at 133.96. German yields 1-2bp higher.
- Bears failed to push Bund yields meaningfully above Dec highs, with 3 tests ultimately failing (2.323% session high vs. prior Dec highs of 2.322%).
- OATs ~1bp wider vs. Bunds (and wider vs. all EGBs on the day), spread sticks to multi-week range, last 80bp. PM Bayrou’s cabinet is set to be named later today.
- Peripherals 0.5bp wider to Bunds, spreads back from session highs as European equities edge away from lows.
- Some attributed the early weakness in bonds to comments from ECB President Lagarde, although we don’t think she was particularly hawkish.
- ECB-dated OIS little changed on the day, showing just under 120bp of ’25 cuts.
- Gilts generally looking to core global FI peers for direction.
- Futures within Friday’s range, -25 at 92.68.
- Yields 2-4bp higher across the curve, steeper, last week’s highs untouched.
- 10-Year spread to Bunds 1bp wider at 223bp.
- BoE-dated OIS stable, showing just over 60bp of cuts through ’25.
- U.S. durable goods and consumer confidence data headlines the macro calendar today, little else of note scheduled.
- Proximity to Christmas will limit liquidity over the coming days.
EGB OPTIONS: RXG5 136/137 Call Spread Lifted
Dec-23 10:32
RXG5 136/137 call spread paper paid 11 on 4.5K.
FOREX: EUR Trades Heavy, But Quiet Market Looks Through Tariff Talk
Dec-23 10:29
- Newsflow and price action is understandably muted, with market volumes well below average for this time of day given the proximity to the Christmas market closures that kick in in earnest tomorrow. That said, EUR is softer on the session, with continued focus on French politics. The French PM is set to unveil a new cabinet later today - a slightly later timeline than initially expected - which may be weighing on French bonds and, in turn, the single currency.
- Having traded 0.8315 overnight, EUR/GBP is back to negative on the day - having reversed ahead of any test on the 50-dma at 0.8319 - a level markets have failed to break on three occasions in the past week or so.
- EUR/NOK is lower for a second session, extending the reversal off the post-Norges Bank high to just over 1%. Rate is now meeting support at the confluence of the 50-, 100-dmas of 11.7666/65. The greenback is more mixed. The USD Index is very mildly higher, but is holding the majority of Friday's slippage - leaving 108.541 the key level ahead.
- As a gauge of lighter volumes and limited liquidity today: EUR futures have traded volumes ~20% below average for this time of day, GBP ~50% lower and JPY ~40% lower. Tariff headlines failed to ignite significant market moves, despite reports that the US have triggered investigations into the legacy semiconductors industry that could result in steeper tariffs on Chinese goods once Trump is in office.
- Building permits data is unlikely to move the needle, however prelim durable goods data is also set for release, as well as the December consumer confidence report. There are no central bank speakers of note.
