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[MARKET ANALYSIS] USTs trade steady, Bunds marginally firmer whilst EZ HICP prints in line with expectations

The harmonized index of consumer prices (HICP) in the Eurozone printing in line with expectations and moderating from prior figures suggests stability in inflation metrics ahead of the ECB meeting.

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[MARKET ANALYSIS] USTs trade steady, Bunds marginally firmer whilst EZ HICP prints in line with expectations

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  • USTs are essentially flat in quiet trade and currently trading in a narrow 111-17 to 111-21+ range. Focus overnight was on the end of the US shutdown after the House voted (217-214) to pass the USD 1.2tln spending package to fund the government. Following this, the Department of Labor announced that all agencies will fully resume normal operations from the 4th of February 2026; there are currently no further details or guidance on whether the NFP due on Friday will be released.
  • Nonetheless, focus turns to US data later; the monthly ADP national employment data will be released, where analysts expect 48k from the prior 41k. The ISM services PMI headline is expected to ease to 53.5 from 54.4, where employment is seen nudging up a little, but prices and new orders are seen easing a touch. From the supply front, the QRA is also due today.
  • Bunds initially held a downward bias but then gradually picked up as the morning progressed; currently at the upper end of a 127.72-127.88 range. There have been a number of Final PMI metrics this morning, with the EZ figure revised a touch lower; the accompanying report suggested that the ECB may highlight growing services inflation in its policy decision this week. EZ HICP printed in line with expectations, and cooled from the prior; core metrics were a touch short of expectations. Overall, a report which will not shift much ahead of the ECB confab on Thursday. As a reminder, the Bank is expected to keep its deposit rate steady at 2.00% and largely reiterate that rates are at a good place. Next up, a 2032 Bund auction.
  • Gilts are essentially flat and trades within a 90.88-91.06 range. Action has been fairly choppy this morning, but have moved off best levels in recent trade. Aside from the UK’s PMI (revised a touch lower), catalysts for the benchmark are incredibly light. Focus now on the BoE on Thursday, where rates are expected to be kept unchanged.
Context

With the core figures slightly missing forecasts, it indicates a nuanced inflation path that the ECB will likely acknowledge, maintaining their current policy stance of stable rates. This steady outlook for inflation may support Bunds in the near term, as investors await further direction from the upcoming ECB decisions.

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