RBI Cuts Repo Rate to 5.25% as Inflation Cools and Growth Outlook Strengthens 
BOJ Expected to Deliver December Rate Hike as Economists See Borrowing Costs Rising Through 2025 
BoE Set to Cut Rates as UK Inflation Slows, but Further Easing Likely Limited 
Bank of Korea Downplays Liquidity’s Role in Weak Won and Housing Price Surge 
Fed Near Neutral Signals Caution Ahead, Shifting Focus to Fixed Income in 2026 
Fed Meeting Sparks Division as Markets Brace for Possible Rate Cut 
Hong Kong Cuts Base Rate as HKMA Follows U.S. Federal Reserve Move 
South Korea Warns Weak Won Could Push Inflation Higher in 2025 
Canada Stocks Steady as Markets Await Fed and BoC Decisions 
Brazil Holds Selic Rate at 15% as Inflation Expectations Stay Elevated 
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.
