Fixed income market: the week ahead Fixed income market: the week ahead Fixed income market: the week ahead

Fixed income market: the week ahead

Bonds
Althea Spinozzi

Head of Fixed Income Strategy

Summary:  This week, watch out for the US employment figures, the Bank of England monetary policy meeting, and news from Italy concerning the government crisis. Ten-year Treasury yields will most likely trade within a tight range between 1% and 1.1% capped by the volatility in the stock market and delays concerning the $1.9 trillion stimulus package. Still, they could test the 1.1% level if nonfarm payrolls surprise on the upside. The Bank of England will most likely leave policy unchanged, but it will be crucial to know whether it is still considering cutting interest rates negative. In Italy, the former coalition's party leaders are meeting today in an attempt to reach an agreement. The name of Draghi has floated around despite President Mattarella saying that there has been no contact with the former ECB's President.


Don't be upset if you have to abandon your skiing plans in light of the Covid-19 restrictions this year; the market is going to give you plenty to watch out for! The second month of the years is starting very busy with the Bank of England’s monetary policy meeting on Thursday and the US employment figures on Friday. On the background, expect Redditors to continue to make noise.

In December, the United States recorded a loss of 140,000 nonfarm payrolls, the first negative figure since April 2020 as the Coronavirus pandemic forced the economy in a lockdown. Although the market expects that 50,000 jobs have been added to the economy in January, the recovery continues to be slow, highlighting the importance of the $1.9 trillion fiscal stimulus plan to pass.

Until these hurdles are not resolved, we can expect US Treasury bonds to trade within a tight range. The 10-year yields will most likely remain above the pivotal 1% level and test the 1.1% level if employment figures surprise on the upside. It is important to highlight that recent developments concerning the Reddit Army also contribute to slow down the rise in yields as uncertainty strikes the stock market.

In the meantime, the US yield curve continues to steepen and this morning the spread between 30- and 5-year Treasury yields briefly rose above 142.5 basis points, the highest since February 2016. We believe that the US yield curve will continue to steepen this week, due to the bullish pressures applied in the front end of the yield curve due to a fall of rates in the repo market. In the next few days, the Treasury General Account (TGA) will disburse benefit payments, supporting the T-bill buying spree the market witnessed last week, which pushed the three-month London interbank offered rate to 0.20500% on Thursday, the lowest since November the 20th.

In Europe, all eyes will be on the Bank of England which faces a hard decision concerning whether to stimulate the economy further as the recent lockdown will inevitably damage the economy increasing the risk of a double-dip recession. Currently, the benchmark interest rate is set at 0.1%, and there have been debates among Monetary Policy Committee members whether to cut it negative with MPC external member Silvana Tenreyro being the biggest supporters of negative interest rates.

Ten-year Gilt yields have been trading within an uptrend channel since last August. However, they have been trying the support line several times showing that yields will not resume their rise unless talks about negative interest rates cease and there is a clear path to recovery, which will follow only after the vaccination is proven effective.

Source: Bloomberg.

Following Friday's selloff caused by mixed signals coming from the ECB concerning a rate cut, European sovereigns opened higher this morning.

Interestingly, Italian BTPs were among the most resilient government bonds on Friday, hinting to the fact that investors holding these securities are in for the long run looking at the potential spread compression versus the Bund. This morning, the country former coalition's leaders are meeting in an effort to reach an agreement between parties. In the meantime, Mario Draghi's name is floated around by Italy Alive, Matteo Renzi's party, as the perfect substitute of Conte. We believe that if Draghi becomes Italy's Prime Minister, the upside for the BTPs will be substantial in light of the pro-European message that will send to the market.

Economic Calendar

Monday, February the 1st

  • Australia: TD Securities Inflation
  • China: Caixin Manufacturing PMI
  • Germany: Retail Sales
  • Switzerland: Retail Sales
  • Eurozone: Markit Manufacturing PMI, Unemployment rate
  • Italy: Markit Manufacturing PMI, Unemployment
  • Spain: Markit Manufacturing PMI
  • United Kingdom: Markit Manufacturing PMI
  • Canada: Markit Manufacturing PMI
  • United States: Markit Manufacturing PMI, ISM Manufacturing PMI, Fed’s Rosengren speech

Tuesday, February the 2nd

  • Australia: RBA Interest rate decision and statement
  • Japan: 10-year Bond Auction
  • Italy: Gross Domestic Product
  • Eurozone: Gross Domestic Product
  • United States: Fed’s William speech

Wednesday, February the 3rd

  • New Zealand: Employment change and rate, Labour Cost
  • Australia: Commonwealth Bank Services, Building Permits, RBA’s Governor Lowe speech
  • China: Caixin Services PMI
  • Spain: Markit Services PMI
  • Italy: Markit Services PMI
  • Germany: Markit Services PMI
  • Eurozone: Markit Services PMI, Markit PMI Composite, Consumer Price Index, Producer Price Index
  • United Kingdom: 10-year Bond Auction
  • United States: ADP Employment Change, Markit Services PMI, Markit PMI Composite, ISM Service PMI

Thursday, February the 4th

  • Australia: Trade Balance
  • Spain: 10-year Obligaciones Auction, 3-year Bond Auction, 5-year Bond Auction
  • France: 10-year Bond Auction
  • Eurozone: Retail Sales
  • United Kingdom: Bank of England Monetary Policy Report, BOE minutes and rate decision, BOE’s Bailey speech
  • United States: Continuing Jobless claims, nonfarm productivity, Unit Labor Costs

Friday, February the 5th

  • Australia: RBA Monetary Policy Statement, Retail Sales
  • Japan: Leading Economic Index
  • Germany: Factory Orders
  • United States: Nonfarm payrolls, Goods and Services Trade Balance, Average Hourly Earnings, U6 Underemployment Rate
  • United Kingdom: BOE’s Governor Bailey speech
  • Canada: Unemployment rate, Net Change in Employment, Ivey PurchasingManagers Index

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.