[MARKET ANALYSIS] Bearish bias from APAC trade

[MARKET ANALYSIS] Bearish bias from APAC trade, driven by JGBs. Fixed now looks to US CPI.

• JGBs lead a bearish trend in APAC trade, impacting global bond markets.
• USTs and Bunds are under pressure, with focus on the Fed Chair investigation and upcoming US CPI data.
• Gilts recover from initial losses, with market participants eyeing US economic indicators for further direction.

In the latest trading session, Japanese Government Bonds (JGBs) have set a bearish tone across the Asia-Pacific region, influencing global bond markets. This decline has been attributed to the "Takaichi trade," which has seen JGBs leading the downside. The ripple effect has been felt in the US Treasury (UST) and European Bund markets, both of which have experienced downward pressure.

USTs are currently holding above the 112-00 mark, maintaining a position just above yesterday's trough. Market participants are closely monitoring two key developments that could impact USTs further. Firstly, the ongoing investigation into the Federal Reserve Chair is causing uncertainty. Treasury Secretary Bessent has reportedly informed President Trump that the investigation is problematic and could negatively affect the market. Bessent also suggested that Fed Chair Powell is unlikely to step down, even if a new Chair is appointed by the President.

Secondly, the upcoming US Consumer Price Index (CPI) data is a focal point for traders. Consensus expectations are for the headline month-on-month and year-on-year figures to remain steady at 0.3% and 2.7%, respectively. However, Goldman Sachs anticipates a hotter print, driven by technical factors, which could influence market sentiment and bond yields.

In Europe, Bunds have mirrored the bearish sentiment, reaching a low of 127.89. The market is awaiting results from the first tap of a new 2031 Bobl, with the US CPI data likely to dictate further action. Analysts note that if the bearish trend continues, support levels at 127.89, 127.82, and 127.70 from recent sessions will be critical.

Meanwhile, UK Gilts opened lower by 14 ticks, reflecting the bearish bias from APAC trade. Despite this initial dip to a 92.30 base, Gilts have since recovered to their opening levels. The market showed no immediate reaction to the passing of inflation-linked supply, and the text of an interview with Bank of England's Bailey, conducted this morning, will not be published until January 16th.

As traders navigate these developments, the focus remains on the potential implications of the Fed Chair investigation and the US CPI data. These factors are expected to play a significant role in shaping market dynamics in the coming days.

Trader Insight:

• Some traders may consider monitoring USTs, particularly the US 10-Year Treasury, for reactions to the Fed Chair investigation and US CPI data.
• Market participants are watching Bunds closely, with attention on support levels at 127.89, 127.82, and 127.70.
• Observers are assessing Gilts for further recovery potential, especially in light of upcoming UK economic data releases.
• Currency traders are likely to keep an eye on USD/JPY, given the broader impact of JGB movements on currency markets.

Disclaimer: This is not trading advice. For informational purposes only.