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

Fixed income market: the week ahead

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  This week's US CPI prints will be in the spotlight as they may force the Federal Reserve's hand about a tapering decision next week. Consequently, the US yield curve may bear-flatten despite the Fed previously soothed interest rates hikes expectations. As foreign demand for US Treasuries remains robust, ten-year yields are unlikely to move outside their year-to-date monthly standard deviation amid an inflation surprise. To strive, bond bears need a tapering announcement. In Europe, we expect yields to remain stable after last week's ECB dovish taper. Heavy bond supply might bring about slightly steeper yield curves: Italy and Spain will issue long-term bonds on Tuesday and Thursday, respectively. Gilts are at risk as inflation is expected to hit a three-year high at 2.9% in the UK.

US Treasuries: inflation is more important than jobs.

Before looking at what market event will drive volatility this week, it's worth spending a few words on Friday's Producer Price Index figures. US PPI hit 8.3%, the highest annual rate since 2010. This data raises questions, once again, whether inflation is truly transitory. By buying $120 billion worth of bonds and MBS monthly, the Federal Reserve continues to stimulate inflationary pressures, posing a policy mistake threat. Therefore, why the Fed stubbornly sticks to its accommodative stance?

Inflation might be the only element that could force central banks out of their accommodative stance; that's why tomorrow CPI numbers are critical to the bond market. The consensus believes that inflation might be peaking. The yearly figure is expected to come at 5.3% year-on-year and 0.4% monthly. If inflation exceeds expectations, doubts about the transitory nature of inflation may arise, prompting the Fed to opt to announce tapering as soon as next week.

Yet, how much volatility can we expect in the bond market out of tomorrow CPI numbers? Bond bears might be disappointed once again. Indeed, demand for US treasuries continues to be exceptionally robust as foreign investors see the convenience to lock-in a considerable pick-up by buying into the US safe-havens. Japanese investors get roughly 100bps over JGBs by buying JPY-hedged US Treasuries. At the same time, European investors are still able to get 90bps over the 10-year Bund by buying into EUR-hedged US Treasuries. That's why indirect bidders demand was stellar at last week’s 10-year and 30-year Treasury auctions, prompting a US Treasuries rally. 

Source: Bloomberg and Saxo Gorup.

Thus, if CPI numbers surprise on the upside, it's safe to assume that 10-year yields will not rise more than their monthly standard deviation since the beginning of the year of roughly 5bps. Only twice this year, 10-year yields rose 10bps or more over a day in February amid the reflation trade. It suggests that bond bears still need a tapering announcement and interest rate hike expectations advancing to match the volatility earlier in the year.

A strong CPI report might lead 10-year yields to break above their 200 days simple moving average, pushing yields close to 1.40%. However, a fall in retail sales on Thursday might reverse their rise. Thus, Treasury yields might change little from current levels ahead of next week's FOMC meeting. Looking at the US yield curve, we expect it to bear-flatten amid a high CPI print, although the Fed has anchored rates hikes expectations.

Source: Bloomberg and Saxo Group.

We remain of the opinion that inflationary pressures justify an early Fed taper. The later a tapering decision is taken, the swifter a taper needs to be, and interest rate hikes to occur earlier, provoking a much deeper selloff in the bond market.  Indeed, five-year and ten-year breakeven rates broke above their 100 simple days moving averages last week in a sign that supply-chain issues, rising labor costs, and corporates' ability to pass on inflation to their customers are causes of more persistent inflation.

European market: heavy supply might bring a steeper yield curve.

We expect the European government bond space to remain calm until the German election or US yields resume their rise. The ECB delivered a dovish taper successfully, providing ample support to bond supply and carry trades during the mid-term.

However, yield curves could steepen slightly this week as bond supply is expected to surpass EUR 30 billion. Italy starts off selling 3-, 7-, and 30-year bonds through an auction tomorrow. On Thursday, Spain will sell 3-, 5- and 10-year bonds. Finally, the European Union sent an RfP last week informing that it will hold three more syndicated transactions in September, October and November to raise money under the NextGenEU fund.

Gilts will be vulnerable amid UK inflation reading.

The UK will be more in the spotlight than Europe this week. Inflation is expected to hit a three-year high at 2.9% in the UK, paving the way to a hawkish Bank of England's monetary policy meeting next week. The MPC looks split regarding whether economic conditions for a hike have been met. Thus, strong inflation numbers might be crucial to a decision next week. After 10-year yields quadrupled at the beginning of the year, they began to fall amid a wave of Delta variant. As the economy reopens and inflation runs hot, we can expect yields to resume their rise towards 0.90%.

Economic Calendar:

Monday, the 13th of September

  • Japan: BSI Large Manufacturing QoQ, Producer Price Index
  • Australia: Consumer Inflation Expectations
  • China: Foreign Direct Investment
  • Germany: Wholesales Prices
  • United States: Consumer Inflation Expectations. 3-months and 6-months Bill Auction. Monthly Budget Statement

Tuesday, the 14th of September

  • Australia: House Prices, NAB Business Confidence
  • Japan: Industrial Production, Industrial Production, Capacity Utilization
  • United Kingdom: Employment Change, Average Earnings, Claimant Count Change, Unemployment rate
  • Spain: Harmonized Inflation Rate
  • France: IEA Oil Market Report
  • Germany: 2-year Schatz Auction
  • Italy: 3-year, 7-year and 30-year BTPS Auction
  • United Kingdom: 5-year Treasury Gilt Auction
  • United States: Inflation rate

Wednesday, the 15th of September

  • New Zealand: Westpac Consumer Confidence, Current Account
  • Japan: Reuters Tankan Index, Machinery orders
  • Australia: Westpac Consumer Confidence index
  • China: House Price Index, Fixed Asset Investment, Industrial Production, NBS Press Conference, Retail Sales, Unemployment Rate
  • United Kingdom: Inflation Rate, PPI Input and Output, Retail Price Index, 10-year Gilt Auction
  • France: Inflation Rate
  • Italy: Inflation Rate
  • Eurozone: Industrial Production, Labour Cost Index, Wage Growth
  • United States: MBA Mortgage Applications, Export Prices, NY Empire State Manufacturing, Industrial Production, Capacity Utilization, Manufacturing Production
  • Canada: Inflation Rate

Thursday, the 16th of September

  • New Zealand: GDP Growth Rate, Balance of Trade, Foreign Bond Investment
  • Japan: Balance of Trade, Foreign Bond Investment
  • Australia: Employment Change, Unemployment Rate, Full Time Employment Change
  • Eurozone: Balance of Trade
  • Italy: Balance Trade
  • Spain: 5-year and 10-year Bond Auction
  • United States: Retail Sales, Jobless Claims, Philadelphia Fed Manufacturing Index, Business Inventories
  • Canada: 30-year Bond Auction

Friday, the 17th of September

  • United Kingdom: Retail sales
  • Eurozone: Inflation Rate
  • Italy: Current Account
  • United States: Michigan Consumer Sentiment and Inflation Expectations

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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 (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.