Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
Federal Reserve Probes Big Banks Over Private Credit Exposure Amid Growing Systemic Risk Concerns 
Bank of America Maintains Forecast for Two Fed Rate Cuts in 2026 Despite Inflation Risks 
Bank of Japan Faces Rate Uncertainty Amid Middle East Oil Shock 
RBNZ Holds Rates at 2.25% as Middle East Conflict Fuels Inflation Concerns 
Bank of Korea Nominee Shin Hyun-song Signals Possible Rate Hike Amid Middle East Inflation Fears 
Bank of Korea Governor Nominee Warns of Action if Korean Won Weakens Further 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
ECB Warns of Rising Inflation Risks Amid Iran War Energy Shock 
Bank of Japan Governor Signals Accommodative Stance Amid Negative Real Rates 
Australia Bans Card Payment Surcharges Starting October 2025 
Singapore Tightens Monetary Policy Amid Middle East War Inflation Risks 
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.
