TURKEY: Republic of Turkiye Benchmark New 7-Year – IPTs 7.50% Area

Core global FI markets have sold off this morning.

• Firmer-than-expected Hesse CPI data out of Germany (based on comparisons with the national CPI expectations) drove further hawkish repricing on the ECB-dated OIS strip and some weakness in bonds.
• ~100bp of ECB cuts now priced through ’25 vs. 115-120bp seen just before the Christmas break.
• Issuance-related pressure also noted ahead of the data, with EUR & GBP supply swelling, expectations for a brisk start for $IG ’25 issuance noted and Tsy coupon supply due over the next three days (as well as the risk of EGB syndication announcements).
• Bund futures -31 at 132.33, lows of 132.22 printed.
• Initial support at 132.00 untested.
• German yields 1-4bp higher, curve flattens. 2s10s 24.6bp, just over 5bp off December highs.
• EGB spreads to Bunds tighter given the Hesse CPI, equity rally and stronger-than-expected peripheral & French services PMIs.
• BTPs and OATs the outperformers, narrowing by ~2bp vs. Bunds.
• 10-Year gilts little changed vs. Bunds, spread ~216bp after trading either side of 220bp over the holiday period.
• Benchmark UK yields 1-2bp higher, cross-market inputs continue to dominate.
• Gilt futures -26 at 91.97, off lows of 91.78. Initial support at the Dec 19 low/bear trigger (91.64) untested.
• SONIA futures +0.5 to -2.0. BoE-dated OIS pricing 56bp of cuts through ’25, 1.5bp less dovish on the day.
• German national CPI data due this afternoon.
• Final U.S. services PMI and durable goods data also due later today, as is factory orders.
• Elsewhere, Fed Governor Cook will speak.

• While the Pound and the EUR have paired some gains versus the Yen, the Dollar is looking to make an attempt at its earlier overnight high of 157.83.
• Risk On tone could be helping as the Emini extends further highs, and the US Yields are doing very little.
• Nonetheless, initial focus for Market Participants is the 158.08 level, the December high.

• The UK services PMI was revised three tenths lower to 51.1 in the final December release (51.4 prelim), leaving a very mild bounce from the 50.8 in Nov.
• The tepid recovery is in contrast to the stronger relative rebound in the Eurozone PMIs this morning.
• The flash release had indicated as such but this final release notes three consecutive monthly declines in staffing numbers for service providers, with December seeing its sharpest drop since Jan 2021. 23% of respondents reported a decline vs 12% signalling a rise. “Service providers widely commented on hiring freezes and the non-replacement of leavers due to rising payroll costs.”
• “Constrained recruitment plans, tight budget setting among clients, and worries about the broader UK economic outlook all contributed to subdued business optimism in December. The degree of positive sentiment was the joint-lowest for two years (equalling that seen in November).”
• The composite PMI meanwhile was revised a tenth lower to 50.4 in the final December release, also pushing it a tenth below the 50.5 in Nov for its lowest since Oct 2023. It implies close to zero real GDP growth.
• However, overall cost inflation increased by its most since April which led to a robust and accelerated rise in prices charged, with the latter led by services inflation hitting a six-month high to remain “well above the pre-pandemic average”.