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BONDS: EGBs/GILTS: Close To Highs But Fed Fallout Clearly Still Weighs

BONDS
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  • EGBs and Gilts have pared losses seen with the open, currently trading close to session highs, but continue to exhibit clear catch-up from yesterday’s hawkish Fed decision which sees only one additional 25bp cut fully priced for 2025.
  • Bunds outperform (10Y yields +3.2bps) and BTPs underperform (+5.5bps) in no surprises with that backdrop.
  • The BTP-Bund 10Y spread has broadly held around 118bp (+3bp) since the open, at highs since Dec 3/4.
  • Gilts also underperform with 10Y yields +5.3bps with no let up in hawkish BoE pricing.
  • In futures, RXH5 at 134.23 (-.38) has lifted off lows of 133.79. The low came close to fresh support at 133.62 (Nov 22 low) whilst resistance isn’t seen until 135.23 (20-day EMA).
  • G H5 trades at 92.15 (-.69) off a low of 91.87 shortly after the open. The impulsive sell-off has extended and it came close to fresh support at 91.73 (Fibo projection of Dec 3-4-5 minor price swing) whilst resistance is seen at 92.58 (Dec 18 low and a gap high on the daily chart).
  • As for shorter-term rates, ECB-OIS prices 28bp of cuts for Jan and a cumulative 98bp for June or 114bp for Oct.
  • That’s in contrast to BoE-dated OIS which now only prices ~12.5bps of easing through the February meeting and with just over 50bps of cuts priced through the course of 2025. SONIA implied terminal rate expectations of 3.97% are just shy of cycle highs.
  • The raft of recent central bank meetings clearly sets the tone then, dwarfing today’s European data including German consumer confidence, French mfg sentiment and the EZ current account.
  • The BoE decision is still to come at 1200GMT (no press conference or MPR). See the MNI BoE preview here: https://media.marketnews.com/MNI_Bo_E_Preview_Dec24_dce60f0230.pdf
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  • EGBs and Gilts have pared losses seen with the open, currently trading close to session highs, but continue to exhibit clear catch-up from yesterday’s hawkish Fed decision which sees only one additional 25bp cut fully priced for 2025.
  • Bunds outperform (10Y yields +3.2bps) and BTPs underperform (+5.5bps) in no surprises with that backdrop.
  • The BTP-Bund 10Y spread has broadly held around 118bp (+3bp) since the open, at highs since Dec 3/4.
  • Gilts also underperform with 10Y yields +5.3bps with no let up in hawkish BoE pricing.
  • In futures, RXH5 at 134.23 (-.38) has lifted off lows of 133.79. The low came close to fresh support at 133.62 (Nov 22 low) whilst resistance isn’t seen until 135.23 (20-day EMA).
  • G H5 trades at 92.15 (-.69) off a low of 91.87 shortly after the open. The impulsive sell-off has extended and it came close to fresh support at 91.73 (Fibo projection of Dec 3-4-5 minor price swing) whilst resistance is seen at 92.58 (Dec 18 low and a gap high on the daily chart).
  • As for shorter-term rates, ECB-OIS prices 28bp of cuts for Jan and a cumulative 98bp for June or 114bp for Oct.
  • That’s in contrast to BoE-dated OIS which now only prices ~12.5bps of easing through the February meeting and with just over 50bps of cuts priced through the course of 2025. SONIA implied terminal rate expectations of 3.97% are just shy of cycle highs.
  • The raft of recent central bank meetings clearly sets the tone then, dwarfing today’s European data including German consumer confidence, French mfg sentiment and the EZ current account.
  • The BoE decision is still to come at 1200GMT (no press conference or MPR). See the MNI BoE preview here: https://media.marketnews.com/MNI_Bo_E_Preview_Dec24_dce60f0230.pdf