[MARKET ANALYSIS] Fixed underpinned by the latest US tariffs, JGBs hit with yields higher as Takaichi outlines election plans

• Fixed underpinned by the latest US tariffs and the accompanying hit to the risk tone. As it stands, we wait to see what European leaders will do in response after the UK PM distanced himself from retaliatory measures. From the US side, a retreat would see further confirmation of the TACO trade. More generally, the assumption is that the tariffs are under IEEPA, which means they will be subject to the SCOTUS decision when that arrives.
• USTs printed a 111-31+ high with gains of just under 10 ticks at best. However, this has proved short-lived with volumes light and no cash trade due to the US market holiday for MLK Day.
• Bunds hit a 128.58 peak, firmer by 44 ticks. Printing a new YTD high and now looking to 128.67 from early-December, if that is taken out, there are then a handful of levels before 129.0,0 before 129.24 from December 1st. Albeit, the upside has pared across the morning as the situation has not materially escalated in European levels and with markets, tariffs/Greenland aside, relatively quiet given the US holiday. As it stands, Bunds are holding at the mid-point of the day's band, but still in the green by c. 20 ticks.
• Gilts gapped higher by 26 ticks and then extended another tick to a 92.51 peak. Since, as above, the complex has pared and given the lack of UK escalation, Gilts are now near-enough flat. Aside from the above factors, one point to consider in the pullback is the inflationary impact of the measures. A narrative that may be being offset, to a degree, in EGBs as the region's gas benchmark snaps its winning streak.
• Finally, but arguably most pertinently, JGBs in focus as Japanese PM Takaichi outlines her plan for a snap election. This will be formally called for on Friday when the Lower House reopens, and will then be dissolved by Takaichi. Net, JGBs are around 40 ticks lower than the close last week, as the "Takaichi trade" extends with the election now formally called. Given this, the 10yr Japanese yield has eclipsed 2.75% and the 30yr above 3.61%. Though the commentary from Takaichi around fiscal policy and a sales tax has sparked a bit of two-way action in the JPY and JGBs, however, the underlying narrative remains.

The latest US tariffs are supporting fixed income markets, particularly USTs and Bunds, while JGBs are facing upward pressure as Japanese PM Takaichi calls for a snap election. This backdrop could lead to further volatility in global yields, especially if inflationary pressures become more pronounced due to ongoing geopolitical tensions. Traders should watch for reactions in the JPY and assess how the evolving election dynamics could affect JGB performance going forward.