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:  The escalation of geopolitical tensions in Ukraine will be a focus this week as it could bear-flatten the US yield curve further. The belly of the curve is already partially inverted as markets prepare for a more aggressive Federal Reserve. However, investors should worry about the 2s5s and 2s10s spreads which are flattening fast and will signal an imminent recession upon inversion. In Europe, a potential war in Ukraine and ECB's monetary policies will be in focus as the BTPS-Bund spread continues to widen. In the UK, jobs, and inflation data could trigger more aggressive interest rate hikes expectations, putting upward pressure on yields.

US Treasuries: the bear flattening will continue.

War. That's the focus of the week as markets were left in disarray on Friday after the White House warned that a Russian attack on Ukraine could happen any day. The Nasdaq fell by -2.78%, while the S&P dropped by -1.9%. US Treasury yields dropped across maturities sending the critical message that investors still see the US safe-haven as a refuge in case of war. That adds a key piece to the puzzle when considering future yield curve developments as it implies that the long part of the yield curve will remain compressed. Still, short-term yields will continue to adjust to the Fed's aggressive stance against inflation growth.

Indeed, a war might add to inflation concerns as Russia is a significant producer of oil, natural gas, and palladium. If the west imposed sanctions, energy price pressures would exacerbate, forcing the Federal Reserve to tighten the economy further. With the 2s10 and 5s30s spreads around 40bps, it isn’t bizarre to envision an inversion of the yield curve, which could further strangle growth.

The yield curve’s belly is already signaling an inversion. The 7s10s year spread inverted last week, while the 5s10s spread trades in the single digits and could invert any day. An inversion in the belly of the curve doesn't indicate an imminent recession; it simply suggests that the Fed is behind the curve and that the market is preparing for a severe rate hiking cycle. Things will be different when the 2s10s spread approaches the single-digit, indicating that aggressive hiking and possibly war are weighing on growth. Nevertheless, we are far from that as the economy is still forecasted to expand above trend this year.

Investors' focus has turned on the March FOMC meeting and whether the Fed will deliver a 50bps rate hike in light of last week's higher-than-expected CPI reading. If the central bank disappoints expectations, that could be a sign the Fed is not serious enough in fighting inflation. Hence, markets will consider even a more aggressive tightening plan in the future, increasing the chances of a tantrum. That's why we believe that the chances of a 50bps rate hike in March are becoming increasingly more likely.

Hence, this week’s Fed's official speeches will be in the spotlight, primarily because Fed's voting members will deliver the majority of them. Inflation data will also be in focus with the PPI numbers coming out tomorrow and retail sales on Wednesday. In terms of US Treasury auctions, there will be a 20-year bond sale on Wednesday and a 30-year TIPS sale on Thursday.

Source: Bloomberg and Saxo Group.

European sovereigns: war and ECB policies in focus.

A possible war in Ukraine weighs on European sovereigns as well. Today, we see German Bunds leading gains as investors fly to safety. It gives respite to the ECB, which saw yields skyrocketing as the market runs ahead to price more aggressive monetary policies. Yet, one of the leading indicators of ECB monetary policies continues to flag troubles ahead. Despite yields dropping in the euro area, the BTPS-Bund spread widens. Although it is true that the Italian debt-to-GDP ratio is not on a steep uptrend, and that yields on Italian BTPS will need to rise much higher for the interest burden to become unsustainable, the BTPS-Bund spread gives us a good idea of how tolerant the ECB can be in light of financing conditions tightening faster in the south of Europe versus the north.

The prospect of a war in Ukraine could provoke markets forecasting a faster hiking cycle even in Europe, contributing to increasing rates volatility in the euro area. That's why today's Olaf Scholz meeting in Kyiv and tomorrow's in Moscow will be in the spotlight.

While Lagarde today will most likely join the chorus of ECB’s speakers saying that the central bank might hold hiking rates, we believe it is unlikely that the market will stop advancing rate hikes as tightening expectations continue to increase worldwide.

Source: Bloomberg and Saxo Group.

UK Gilts have not finished with their selloff.

It is going to be a crucial week for UK data. Jobs figures will be released tomorrow, followed by inflation data the day after and retail sales numbers on Friday.

Investors are going to look at these data and consider what the response of the BOE will be. Although four members out of nine voted for a 50bpasis points increase of 25bps, the central bank was not seen hawkish enough during last month’s monetary policy press conference. Suppose this week's data show a tight labor market and rising inflation. In that case, it could be enough for markets to advance interest rate hikes to catch up with the Fed across the Atlantic or even overtake it. It implies we might see the Gilt yield curve flattening further and the 2s10s spread even inverting.

Source: Bloomberg and Saxo Group.

Economic Calendar

Monday, February the 14th

  • Eurozone: ECB’s President Lagarde speech
  • United States 3-month and 6-mont Bill Auction

Tuesday, February the 15th

  • Japan: Gross Domestic Product (Q4)
  • United Kingdom: Average Earnings Excluding Bonus (Dec), Claimant Count Change (Jan), ILO Unemployment Rate (Dec), 10-year Bond Auction
  • China: FDI – Foreign Direct Investment (Jan)
  • Spain: Harmonized Index of Consumer Prices (Jan)
  • Eurozone: Gross Domestic Product (Q4), ZEW Survey – Economic Sentiment (Feb)
  • Germany: ZEW Survey – Current Situation and Economic Sentiment (Feb)
  • United States: Producer Price Index (Jan)

Wednesday, February the 16th

  • China: Consumer Price Index (Jan)
  • United Kingdom: Consumer Price Index (Jan), PPI Core Output (Jan), Retail Price Index (Jan)
  • Eurozone: Non-monetary Policy ECB Meeting, Industrial Production (Dec)
  • Germany: 10-year Bond Auction
  • United States: Retail Sales (Jan), Export and Import Price Index (Jan),  20-year Bond Auction, FOMC Minutes
  • Canada: BoC Consumer Price Index (Jan)

Thursday, February the 17th

  • Japan: Merchandise Trade Balance (Jan), Export and Imports (Jan), Foreign Bond Investment
  • Australia: Employment Change (Jan), Fulltime Employment (Jan), Unemployment Rate
  • Eurozone: ECB’s Schnabel speech, Economic Bulletin, ECB’s Lane Speech
  • Switzerland: Trade Balance (Dec)
  • Italy: Trade Balance
  • United States: Building Permits (Jan), Housing Starts (Jan), Initial Jobless Claims, Philadelphia Fed Manufacturing Survey (Feb)

Friday, February the 18th

  • Japan: National Consumer Price Index (Jan)
  • France: ILO Unemployment (Q4), Consumer Price Index (Jan)
  • United Kingdom: Retail Sales (Jan)
  • Eurozone: ECB’s Elderson speech, Current Account (Nov), Construction Output (Dec), ECB’s Panetta speech, Consumer Confidence (Feb) Prel
  • Canada: Retail Sales (Dec)
  • United States: Fed Monetary Policy Report

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.