BONDS: Bunds Off Lows On Tariff Worry & Downtick In Oil, OATs & Gilts 1bp Wider

Core global FI markets off session lows, with oil ticking lower and short-term technical levels holding in German paper.

• Continued focus on potential U.S.-China trade tariffs likely factored into the recovery as well, given the readthrough for European growth.
• Core global FI yields still higher on the day.
• Bund futures last -18 at 133.96. German yields 1-2bp higher.
• Bears failed to push Bund yields meaningfully above Dec highs, with 3 tests ultimately failing (2.323% session high vs. prior Dec highs of 2.322%).
• OATs ~1bp wider vs. Bunds (and wider vs. all EGBs on the day), spread sticks to multi-week range, last 80bp. PM Bayrou’s cabinet is set to be named later today.
• Peripherals 0.5bp wider to Bunds, spreads back from session highs as European equities edge away from lows.
• Some attributed the early weakness in bonds to comments from ECB President Lagarde, although we don’t think she was particularly hawkish.
• ECB-dated OIS little changed on the day, showing just under 120bp of ’25 cuts.
• Gilts generally looking to core global FI peers for direction.
• Futures within Friday’s range, -25 at 92.68.
• Yields 2-4bp higher across the curve, steeper, last week’s highs untouched.
• 10-Year spread to Bunds 1bp wider at 223bp.
• BoE-dated OIS stable, showing just over 60bp of cuts through ’25.
• U.S. durable goods and consumer confidence data headlines the macro calendar today, little else of note scheduled.
• Proximity to Christmas will limit liquidity over the coming days.