[MARKET ANALYSIS] Fixed relatively flat as we count down to NFP

• A contained session for fixed income as we count down to US NFP.
• Into that, USTs are holding in a narrow 112-05 to 112-12+ band. As it stands, markets ascribe around a 13% chance of a cut in January, with a move not implied until the June meeting, where there are c. 22% implied odds for a hold. For 2026 as a whole, pricing currently looks for the Fed Funds Rate to end the year in a 3.00-3.25% band vs the current 3.50-3.75%, according to CME FedWatch.
• Bunds are also rangebound. No move to the morning's very strong November Industrial Production, a series that was driven primarily by 7.8% M/M growth in autos. That aside, specifics for EGBs are a little light with all eyes on NFP. For the bloc, we await the EU-Mercosur deal vote; it should pass; however, the support of Italy is not guaranteed, but is needed to hit the 'qualified majority' rule.
• On that point, France is set to vote against the Mercosur deal, as things currently stand with the safeguards. However, this is not stopping the far-Left (LFI) and far-Right (RN) from filing confidence motions against the government. Despite PM Lecornu heading up a minority government, the general consensus is that the no-confidence motion against him regarding Mercosur will not pass. Nonetheless, it does provide another point of concern for the government which is now back working on the nation's fiscal situation.
• Into this, the OAT-Bund 10yr yield spread remains steady around the 70bps mark.

The fixed income market remains relatively stable ahead of the upcoming NFP report, indicating cautious sentiment among traders. Current yields appear locked in narrow ranges, reflecting limited expectations for immediate Fed actions, while attention shifts towards potential implications of the NFP results and ongoing political dynamics in Europe, particularly regarding the EU-Mercosur deal.