Morning from Copenhagen. 

We had strong momentum in USD Fixed Income yesterday, and the tariff premium in bond yields is slowly but surely fading in the long end.

We have pointed out before that the outlook for bond yields is tricky to say the least as you have 2 opposing forces dragging bond yields in each direction: Growth is strong vs Powell/Bessent/Trump trying to get yields down in unison, which is the clear message we got from Scott Bessent yesterday despite the QRA showing that issuance will not be moved at all for the first quarter of 2025, which was the clear base case going into the QRA report.

Our models on growth have been incredibly strong throughout most of January, but we are starting to see things turn in the early parts of February. We will monitor this closely, but if February is weak macro-wise, bond yields will come down a LOT as both macro and policy will be pointing in the same direction. The ISM services report was soft yesterday, and the prices paid index came down substantially compared to last month’s hot print, and we are likely in the early stages of a manufacturing up / services cooling environment.

TY looks decent in light of this, but we will wait and see how NFP plays out tomorrow (we btw expect a decently strong print – see chart on the ISM employment composite vs NFP which rebounded further yesterday despite a softer report). We have so far been expecting a material re-tightening of the labor market, but it increasingly looks like we will only get one final strong NFP report before we return to a broad normalization in employment.

Chart 1.a: Growth has flatlined in late January / early February