EM LATAM CREDIT: Pemex Bonds Rise as Company Works With Mexico on Debt Plan

Gilts and EGBs soared Wednesday after the much-anticipated US CPI report proved benign for bond markets.

• Gilts initially strengthened after December CPI readings came in lower than expected, but reversed lower as the reading appeared to have been skewed downward by volatile components (namely airfares). They would recovered but set back anew on a weak Jul-34 Gilt auction.
• Ultimately though, a US CPI report on the soft side of expectations triggered a sizeable global FI relief rally, in which Gilts outperformed peers across the curve after weeks of underperformance. UK yields ticked up toward the cash close amid a speech by BoE dove Taylor, but the move looked driven by external factors rather than the speech itself. The UK curve bull flattened overall.
• Bunds largely tracked the wider global moves. The German belly outperformed on the curve, with EGB periphery spreads narrowing sharply as risk-sensitive assets rallied.
• Thursday's schedule includes UK monthly activity data and final German and Italian inflation, as well as the accounts of the December ECB meeting.

Closing Yields / 10-Yr EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 6.2bps at 2.257%, 5-Yr is down 9.9bps at 2.363%, 10-Yr is down 9.8bps at 2.554%, and 30-Yr is down 7.5bps at 2.781%.
• UK: The 2-Yr yield is down 13.6bps at 4.469%, 5-Yr is down 14.2bps at 4.471%, 10-Yr is down 15.6bps at 4.733%, and 30-Yr is down 14.7bps at 5.302%.
• Italian BTP spread down 4.9bps at 113.9bps / French OAT down 3.4bps at 79.7bps  
  
   

• Date $MM Issuer (Priced *, Launch #)
• 01/15 $Benchmark NY Life 10Y +90a
• 01/15 $Benchmark Dexia 5Y SOFR+73a
• 01/15 $Benchmark NLG Global Funding 5Y +115a
• 01/16 $Benchmark Citadel LP 5Y +200a, 7Y +225a
• Expected to issue Thursday:
  • 01/16 $Benchmark CABEI 3Y +75a
  • 01/16 $1B Kommuninvest WNG 3Y SOFR+37a
  • 01/16 $Benchmark CDP Financial 5Y SOFR+63a

Lots to digest in Taylor's inaugural speech (the market reaction is likely subdued somewhat in rates markets given that he already dovishly dissented in December).

• He sees the risks of case 1/2/3 as 40/40/20.
• Under case 1 he sees 125-150bp of cuts needed in 2025 and under case 2 100bp.
• He also describes the probability of case 1 rising in multiple parts of the speech.
• In terms of neutral rates under case 1/2 he expects that this is somewhere in the 2-3% range. We are still at 4.75% after 2x25bp cuts - so even 150bp of cuts in 2025 would still see Bank Rate a bit above Taylor's estimate of where neutral would be.
• Very detailed speech, very explicit in his views. Q&A coming up later could be equally interesting.