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[MARKET ANALYSIS] Fixed on the backfoot with supply in focus in a shutdown-thinned docket

The market is currently under modest pressure, particularly in the fixed income space, driven by a thin data docket following the US government shutdown.

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UK sells GBP 4.25bln 4.75% 2035 Gilt: b/c 3.63x (prev. 3.26x), average yield 4.585% (prev. 4.456%), tail 0.2bps (prev. 0.3bps)

Iran's Vice President says a new chapter of Iran's nuclear achievements will be unveiled

[MARKET ANALYSIS] Fixed on the backfoot with supply in focus in a shutdown-thinned docket

French prosecutors have called Elon Musk and Yaccarino to testify as part of the X investigation

Kremlin's Spokesperson says Russia has not heard any statement from India about halting Russian oil purchases, adding that they intend to continue developing their relations with India

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  • JGBs spent the overnight session under modest pressure, with losses of just under 15 ticks at most in a narrow 131.41-60 band. Specifics for Japan are a little light as we count down to Sunday's election, and the narrative is increasingly pointing to a convincing LDP victory, with a 'super majority' featuring more in discussions around the potential outcome.
  • USTs are under modest pressure after contained APAC trade. Pressure that is most pronounced at the short-end, with yields bid across the curve and flattening as things stand, in a marginal extension on the post-ISM flattener. Today's docket has been trimmed by the US shutdown, as the BLS will not be updating until there is a resolution and as such, JOLTS will not print. While a funding deal should pass very shortly, Friday's NFP will also be pushed until at least next week.
  • Currently, USTs trade at the low-end of 111-15 to 111-20+ parameters, at a WTD low, taking out last week's trough by half a tick but clear of the 111-09 YTD base. Amidst this, and given the lack of data, corporate updates may draw even greater attention; reminder, Monday saw ORCL outline plans to raise c. USD 30bln.
  • Bunds came under pressure early doors, directionally in-fitting with the above, but with magnitudes a little more pronounced in limited newsflow and light volumes. A move that was perhaps a function of the constructive European risk tone at the time. Bunds as low as 127.74 at the time, and currently hold a handful of ticks above that trough with losses of c. 15 ticks on the session.
  • Data-wise, French prelim. HICP came in cooler-than-expected across the board, lifting EGBs generally at the time. A series that works to offset some of the hawkish impulses from the prelim. German figure, ahead of Wednesday's EZ-wide HICP; though, the series will have no impact on the February ECB, with a hold a near-certainty.
  • Gilts gapped lower by 12 ticks, acknowledging the above. UK specifics are very light. Supply due shortly, before German Green issuance and any potential updates on Italian syndication. For the UK, newsflow remains focused almost entirely on Mandelson, but for markets, attention will turn increasingly to Thursday's BoE, where a hold is expected but desks diverge on whether the split will be 7-2 or 6-3, with Ramsden the one to watch.
Context

With yields climbing, especially on the short end, investors are more focused on corporate updates and the upcoming BoE decision, while European bonds react variably to mixed HICP data from France and Germany. This environment suggests a cautious approach as supply pressures and central bank decisions weigh on market sentiment.

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