POWER: Investment Funds Net Short Positioning Climbs for Second Week

Germany's IFO Business Climate Index rose slightly to 85.1 in January, stabilizing on a low level (84.7 prior) and barely surpassing expectations of 84.8. The print mirrors Friday's flash PMI release overall with a stronger composite reading - however, the IFO index sees a continued deterioration in the business climate of manufacturing firms. Overall, the print suggests the ongoing slump in German economic conditions is not to subside anytime soon.

• The current assessment at 86.1 (vs 85.4 cons; 85.1 prior) was responsible for the higher overall reading, while expectations at 84.2 (vs 85.0 cons; 84.4 prior) remained weak.
• Across sectors, manufacturing firms reported increased scepticism and new orders continued to decline. Services did however see a solid rise in business climate as both expectations and the current assessment increased, with IT services seeing a particularly notable uptick. Trade meanwhile saw some broadly unchanged conditions whilst the construction sector saw a slight decrease in its overall climate on the back of lower expectations.

• US Tnotes and Bund are still leading Bonds higher, {r3} USDJPY is through 155.00 on the follow.
• TYH5 targets the next immediate resistance at 109.08+, although as just mentioned, the 4.50% level is at 109.10 today.
• The Immediate resistance in Bund is at 132.15 (20 day EMA), but better is seen at 132.22 and 132.57 initially.
• The Tnotes/Bund spread is now 3.1bps tighter, lowest since the 11th November, now eyeing a test at the 200.00bps level.

(chart source: MNI/Bloomberg).

Spread widening vs. Bunds early today, with the risk-off tone generated by DeepSeek’s AI advancements (detailed in previous bullets) driving the moves.

• Major 10-Year EGB spreads to Bunds 0.5-2.5bp wider on the session.
• 10-Year OAT/Bunds back towards 75bp (+1.5bp on the day at 74.5bp) after failing to threaten 70bp last week. Ongoing French fiscal and political risks could provide some limitations to further meaningful tightening, unless we see some fresh developments on that front.
• 10-Year BTP/Bunds back above 110bp (+2bp on the day) after failure to close below the December closing low (106.4bp) last week.