STIR: Hawkish Musalem Can’t Sway Risk-Off Rally In Fed Rates

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Gilts outperformed Bunds in a bull flattening move across European curves Tuesday.

• European bonds fluctuated overnight, with competing moves as US President Trump opined on tariff imposition. Supply weighed on EGBs, with France and Lithuania conducting syndications (France's 15Y OAT seeing record order books >E134B). For their part. Gilts saw limited pressure on a Jan-40 Gilt syndication.
• After weakening for most of the European morning session, global FI saw a recovery in the afternoon triggered by a slightly softer than expected Canada CPI report.
• European data was largely shrugged off: UK labour market figures were mixed (soft quantity readings vs. firmer-than-expected private wages). German ZEW expectations fell by more than expected.
• The German and UK curves bull flattened. Periphery EGB spreads to Bunds closed slightly tighter, with semi-core French OATs outperforming on the aforementioned well-received syndication.
• Wednesday's calendar is highlighted by ECB speakers including Lagarde, with data including UK public finances.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.7bps at 2.215%, 5-Yr is down 1bps at 2.318%, 10-Yr is down 1.6bps at 2.51%, and 30-Yr is down 2.8bps at 2.731%.
• UK: The 2-Yr yield is down 4.3bps at 4.334%, 5-Yr is down 5.1bps at 4.337%, 10-Yr is down 6.9bps at 4.59%, and 30-Yr is down 5.9bps at 5.151%.
• Italian BTP spread down 1.2bps at 108.1bps / French OAT down 1.2bps at 77bps  

• RES 4: 110-25   High Dec 12
• RES 3: 109-31   High Dec 18   
• RES 2: 109-17+ 50-day EMA  
• RES 1: 109-04/109-06 High Jan 21 / High Dec 31 
• PRICE:‌‌ 108-23+ @ 17:05 GMT Jan 21
• SUP 1: 108-00/107-06 Low Jan 16 / 13 and the bear trigger    
• SUP 2: 107-04   Low Apr 25 ‘24 and a key support  
• SUP 3: 107-00   Round number support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

The medium-term trend condition in Treasury futures remains bearish and the recovery that started Jan 13, is considered corrective. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-17+, the 50-day EMA. A clear break of the 50-day average is required to strengthen a bullish theme. The bear trigger has been defined at 107-06, the Jan 13 low.