China Holds Loan Prime Rates Steady in January as Market Expectations Align 
MAS Holds Monetary Policy Steady as Strong Growth Raises Inflation Risks 
BOJ Holds Interest Rates Steady, Upgrades Growth and Inflation Outlook for Japan 
Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
RBA Raises Interest Rates by 25 Basis Points as Inflation Pressures Persist 
Federal Reserve Faces Subpoena Delay Amid Investigation Into Chair Jerome Powell 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
Why Trump’s new pick for Fed chair hit gold and silver markets – for good reasons 
This week saw a significant shift in Fed rhetoric, seemingly on growing concerns over an overshoot of full employment, leading markets to price in a significantly higher probability of a hike in the next meeting in March and an underperformance in US bonds.
We update our regular positioning indicators and find that investor positioning appears significantly cleaner since end-Jan, suggesting a reduced risk of position unwinds exacerbating market moves in the near term.
In the Euro area, we retain a bias for higher yields and steeper curves in Germany but stay tactically neutral given the speed of the sell-off.
Hold 2Yx2Y/15Yx15Y swap curve steepeners, and 2s/10s weighted bear steepeners. Enter 1Y swap/ Jun17 Bobl bull flatteners. Receive Jun18 ECB OIS. Keep reds/blues weighted bear steepeners and Bund/Buxl swap spread curve flattener.
Enter Jun17 Bund swap spread bear widener. In vol, hold Schatz/Bund vol curve steepener, stay long Jun17 bund gamma via OTM calls, but stop out of long 3Mx10Y gamma.
Intra-Euro area, spreads are tighter on reduced political risk, though we continue to see the tail risk of a Le Pen presidency warranting cheap downside protection. Add short 3Y Netherlands vs. Finland and 2s/10s Italy flattener vs. Germany.
In the UK, We see valuations too rich, and stick with a bearish view: stay short 10Y gilts and hold 1Yx1Y/15Y GBP swap curve steepeners. Enter Jun17/Sep17 Short Sterling steepener boxed against Jun17/Sep17 Euribor flattener and keep reds/greens SONIA curve steepener.
Hold paying 10Yx10Y GBP vs. EUR swaps.
In Japan, receive 1Y USD/JPY cross currency basis, hold longs in the 5s/10s/20s JGB curve fly.
Next week’ key events: ECB, RBA; UK Spring Budget, US nonfarm payrolls.
