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:  European sovereign spreads continue to widen following last week’s ECB’s hawkish tilt, putting the ECB in a difficult spot. This week, speeches from Lagarde and other policymakers will be in the spotlight as the market advances interest rate hikes expectations. However, as the BTPS-Bund spread approaches 200bps, the central bank might become more cautious on an early tightening agenda. In the US, the CPI numbers for January will be a focus together with the 3-year, 10-year, and 30-year US Treasuries auctions starting from tomorrow. As the Federal Reserve approaches the end of tapering, the question is whether appetite for government bonds will remain strong despite a bear bond market.

European sovereigns: spreads widen as the market advances interest rates hikes.

Following ECB Knot’s commentary during the weekend, the market is quickly advancing interest rate hikes in the euro area for this year. Investors now expect an interest rate hike of 25bps by September. The market reaction gives us a glimpse of what 2022 will look like with a hawkish ECB, which could terminate QE early (around July, as BofA’s research recently indicates) and hikes rates in September. It doesn’t promise anything good for the periphery. An aggressive ECB takes support away from those countries that need it the most for their recovery, provoking a fast tightening of financial conditions in Southern Europe compared to the north. This is an outcome that the central bank definitively wants to avoid not to revive a political crisis in the euro area.

However, the French election is coming in April. With inflation running at the highest ever for the Eurozone, there is the chance that Macron will not be re-elected in favor of euro-skeptics, which also threatens the real existence of the European Union. Within this complex context, the ECB is given the delicate job to take a monetary decision in March, which might sign the bloc's destiny.

Economically, remaining dovish is not an option, as the euro will weaken, weighing on energy prices, thus bringing more inflation.

Therefore, it’s improbable that the central bank will turn dovish, but it is also true that its hawkishness must have a limit. We see the ECB hawkishness limit drawn by the BTPS-Bund spread as it reaches 200bps. Since the end of the European sovereign crisis in 2013, the spread between the two countries broke and sustained above this level only twice: during the 2018 Italian election and the 2020 Covid pandemic. A BTPS-Bund spread above 200bps has been associated with distress levels in the past. It is likely to happen the same this time around, except that the ECB will not prioritize it until the French election is over in April.

This week bond investors are better to focus on ECB’s speakers, starting today with Lagarde speaking at the hearing of the European Parliament’s Economic and Affair Committee. We will also hear from De Cos, Villeroy, Guindos, and Lane throughout the week. The European Commission's economic forecasts released on Thursday are also in focus, which will probably see a revision in growth and inflation forecasts.

Source: Bloomberg and Saxo Group.
Source: Bloomberg and Saxo Group.

US Treasuries: CPI numbers and US Treasuries auction in focus.

Amid a hawkish BOE and ECB last week, US Treasury yields resumed their rise, with 10-year yields breaking above 1.88% for the first time since January 2020. The market is waiting impatiently for the CPI numbers on Thursday, expected to come out at 7.3%, the highest since 1981. The question is whether the market will advance interest rate hikes and price a 50bps rate hike in March, on the back of it contributing to another selloff in US Treasuries.

Data concerning the trade balance will also be in the spotlight as an increase of the trade deficit requires foreign investors to step up their purchases of US assets while the Federal Reserve is ending bond purchases and more buyers are needed to support the trade budget. Therefore, bidding metrics during the next three days' 2-year, 10-year, and 30-year US Treasuries auction will be in focus. During the auction of the same tenors in January, we have seen indirect bidders step up purchases of all issuance except for the 10-year Bonds as yields were rising. Now that yields are way higher and 10-year eur-hedged US Treasuries offer 100bps over the Bund, it's safe to expect demand to be sustained. However, will investors buy government bonds carrying a high duration as we enter a bond bear market?

Source: Bloomberg and Saxo Group.

Economic Calendar

Monday, February the 7th

  • Australia: TD Securities Inflation (Jan)
  • China: Caixin Service PMI (Jan)
  • Switzerland: Unemployment Rate (Jan)
  • Germany: Industrial Production (Dec)
  • Eurozone: Sentix Investor Confidence (Feb)
  • United States:  Consumer Credit Change (Dec), 3-month and 6-month Bill Auction

Tuesday, February the 8th

  • Japan: Overall Household Spending (Dec), Current Account (Dec)
  • France: Current Account (Dec)
  • Italy: Retail Sales (Dec)
  • United States: NFIB Business Optimism Index (Jan), Goods and Service Trade Balance (Dec), 3-year Note Auction
  • Canada: International Merchandise Trade (Dec)

Wednesday, February the 9th

  • United Kingdom: BRC Like-For-Like Retail Sales (Jan)
  • New Zealand: RBNZ Inflation expectations (Q4)
  • Germany: Current Account (Dec), Trade Balance (Dec), 30-year Bund Auction
  • Italy: Industrial Output (Dec)
  • United States: MBA Mortgage Applications, Wholesale Inventories (Dec), 10-year Bond Auction
  • Canada: BoC’s Governor Macklem speech

Thursday, February the 10th

  • Australia: Consumer Inflation Expectations (Feb)
  • China: M2 Money Supply (Jan), New Loans (Jan)
  • Eurozone: European Commission releases Economic Growth Forecasts
  • United Kingdom: NIRS GDP Estimate (Jan)
  • United States: Consumer Price Index (Jan), Consumer Price Index ex Food & Energy (Jan), Initial Jobless Claims, 4-week Bill Auction, 30-year Bond Auction, Monthly Budget Statement (Jan)

Friday, February the 11th

  • New Zealand: Business NZ PMI (Jan)
  • United Kingdom: Gross Domestic Product (Dec), Gross Domestic Product (Q4) Prel), Industrial Production (Dec), Manufacturing Production (Dec), Total Business Investment (Q4) Prel, Total Trade Balance (Dec)
  • Germany: Harmonized Index of Consumer Prices (Jan)
  • Italy: 3-year and 7-year BTPS Auction
  • United States: Michigan Consumer Sentiment Index (Feb) Prel


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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 Markets 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

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 such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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 website 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 intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.