UK FISCAL: Gov't Risks Backbench Ire w/Spring Statement Welfare Reforms

Core FI has been supported by the latest round of equity weakness, with Bund futures gaining ~30 ticks since the US cash open to move back to 132.30. Today’s session high of 132.50 remains untested for now. 

• 10-year peripheral spreads to Bunds unsurprisingly widen, with the BTP/Bund spread now back at 109bps (+0.5bps on the session).
• SPGBs underperform peers slightly (+1bp today at 63bps), with today’s 15-year syndication mandate weighing at the margin. We expect a transaction tomorrow and pencil in a wide E5-10bln range. Meanwhile, headlines noting that the government will propose writing off E83bln of regional debt were not market moving, having been part of an agreement signed by the government in 2023.

We've just published our latest update of European bond futures positioning (PDF):

• Going into the quarterly roll (March to June), structural positioning across European futures contracts is flat/short.
• First notice for Gilts is Feb 27, with the roll well underway as of early Monday afternoon; for Eurex it's Mar 6.
• Last week's trade saw short-setting and long-reduction, with a sharp non-roll related drop in Eurex OI Friday.

The ECB’s persistent and common component of inflation metric fell 5bp to 2.11% in January, still slightly above the 2024 average of 1.97% but broadly in line with the 2% inflation target. The data should support Governing Council dove’s confidence in the inflation outlook, even as domestic spot inflationary pressures remain evident. 

• PCCI is the ECB’s preferred measure of medium-term inflation pressures, and is constructed “by estimating a dynamic factor model that extracts the persistent and common component of inflation from granular price data at the item-country level”.
• Core PCCI (i.e. excluding energy and food) was little changed at 1.90%, while Supercore (“which picks out those items that are estimated to co-move with the business cycle”) eased a tenth to 2.7%.
• The weighted median metric saw a notable 3 tenth increase to 2.8% for its highest since May 2024. Meanwhile, the 10% and 30% trimmed mean series were each 2.5% Y/Y.