Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
ECB Signals Possible Interest Rate Move if Inflation Outlook Fails to Improve 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
South Korea Central Bank Signals Cautious Policy Amid Inflation and Middle East Tensions 
RBA Raises Interest Rates to 4.35% Amid Rising Inflation Risks and Middle East Tensions 
OECD Sees Bank of Japan Raising Interest Rates to 2% by 2027 
Eurozone Recession Risks Rise as Middle East Conflict Threatens Growth, ECB Official Warns 
Paraguay Holds Interest Rate at 5.5% as Inflation Remains Stable Amid Global Uncertainty 
RBA Rate Hike Outlook: Impact on AUD/USD and ASX 200 
Bank of England Set to Hold Interest Rates as Inflation Risks and Iran War Impact Loom 
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.
