CZECHIA: Staff Flag US Policy As Key Source Of Uncertainty

SX7E (21st Mar) 145/135ps, bought for 2 in 6k.

A narrow session for core global FI markets, with TY, Bund & gilt futures all trading above yesterday’s lows.

• Continued heavy IG supply limits any recoveries at this stage.
• The initial EGB syndications of ’25 have generated strong demand.
• Little reaction to fresh multi-month highs in crude futures.
• Bearish technicals intact.
• Bund futures flat around 132.00, German yields -0.5bp to +0.5bp, light steepening.
• EGB spreads to Bunds -2bp to +0.5bp.
• European equity rally promotes some outperformance for the likes of GGBs and BTPs.
• GGBs continue early ’25 outperformance, aided by fiscal/ratings trajectory and the PDMA’s conservative ’25 issuance target. Spread to Bunds further below 75bp, on track for another cycle closing low.
• BTPs have tightened by ~1.5bp vs. Bunds, aided by solid demand at today’s syndication (orderbooks have hit a record level for a dual tranche offering). Spread to Bunds nearing 110bp, a level not closed below since December 11.
• PGBs the laggard this morning, perhaps driven by expectations for a PGB syndication announcement.
• Gilts saw some light concession into this morning’s ’30 gilt auction, although have stabilised since, aided by solid enough demand (which was notable given the bearish backdrop).
• Futures last little changed at ~91.40. Yields little changed across the curve.
• ECB & BoE pricing little changed on the day, showing 102bp and 55.5bp of cuts through ’25, respectively.
• U.S. ADP employment and weekly jobless claims data due later.
• Comments from Fed’s Waller & ECB’s Villeroy also scheduled.
• Bund supply due shortly, with U.S. 30-Year supply on deck later.

Greenlandic Prime Minister Múte Egede will meet with King Frederik X at 1400CET amid intense national and international political focus on the future of Greenland. The meeting was initially called off by Egede on the evening of 7 Jan citing 'calendar gymnastics' but was this morning reinstated at an earlier time. This followed the controversial visit of Donald Trump Jr. to the capital, Nuuk, on the same day. 

• Speaking at a presser on 7 Jan, US President-elect Donald Trump when asked whether he would rule out using military or economic force to take control of Greenland (or indeed the Panama Canal) Trump responded "No, I can't assure you either of those two. But I can say this: we need them for economic security. We need Greenland for national security purposes."
• In response to Trump Jr.'s visit, Danish PM Mette Frederiksen, only months ago seen as a contender to be the next NATO secretary general, sought to downplay the likelihood of direct US-Danish conflict while also advocating for Greenland's right to choose its path.
• As well as sitting under the shortest aerial route between North America and Europe, Greenland has significant reserves of rare earth elements crucial in manufacturing high-tech equipment such as batteries and semiconductors. Given the prospect of an escalation in trade tensions between the US, Europe, and China in the coming months and years ensuring a stable supply chain for such REEs will be a key economic and military priority for Washington.