EUROPEAN FIXED INCOME UPDATE: Bunds attempt to atone for yesterday's losses, US paper eyes NFP

USTs: +4 ticks; 110.29+

• USTs are a touch higher following yesterday's ECB-led losses which outmuscled a spike higher in weekly claims metrics.


• From a US viewpoint, little sustained follow-through has been seen following the positive readout of the Trump-Xi call yesterday as markets await any details of plans for both sides to meet again.


• Whilst the Trump-Musk fallout has garnered a lot of media attention given its explosive nature, unless Musk is able to get Republicans on board with his opposition to Trump's Bill, it is likely to be more noise than signal at this stage.


• Of greater importance is today's US NFP report which is set to see payroll growth slow to 130k from 177k and unemployment rate hold steady @ 4.2%. ING writes that "a bad number will lower US rates, but near-term inflation fears and fiscal concerns push in the opposite direction".


• As it stands, the next 25bps cut is not fully priced until September with 54bps of loosening seen by year-end.


• Sep'25 USTs are currently within yesterday's 110.23+ to 111.14+ range. From a yield perspective, the US curve is fractionally in bull flattening mode, whilst the 10yr yield has moved back to the 4.37% after venturing as low as 4.318% yesterday.

Bunds: +53 ticks

• Bunds are attempting to atone for yesterday's losses which were seen in the wake of the ECB rate decision which saw policymakers pull the trigger on a 25bps rate cut, whilst noting that policy is "well-positioned"; suggesting that the ECB could be nearing or at the end of its cutting cycle. In the wake of the announcement, source reporting via Reuters noted that a visible majority in the ECB meeting expressed preference for holding rates unchanged in July and some argued for a longer pause. Markets price one more cut this year, taking the deposit rate to 1.75%.


• ECB speak this morning hasn't shifted the dial with policymakers signalling flexibility going forward, whilst acknowledging progress on inflation.


• Today's EZ data slate sees revisions to Q1 GDP and employment metrics alongside retail sales.


• Sep'25 Bunds have been as high as 130.72 but are still some way away from yesterday's peak @ 131.47. The 10yr yield is back below the 2.55% mark after climbing as high as 2.581% yesterday.

Gilts: +34 ticks; 92.28

• Gilts are currently being led by the upside in German paper as UK-specific newsflow remains light ahead of next week's UK spending review. On which, UK Chancellor Reeves reaffirmed she will not have a UK budget like October's again but can't rule out any tax changes over the next four years.


• Note, labour market metrics and monthly GDP are also due on next week's docket.


• For today's agenda, BoE Chief Economist Pill is due to speak @ 13:00BST but given the subject matter of "AI and Households", it is unclear how much he will touch on monetary policy.


• Sep'25 Gilts have been as high as 92.31 but still have some ground to cover before approaching yesterday's best @ 92.63. The 10yr yield currently sits just above the 4.6% mark and within yesterday's 4.557-4.648% range.

06 Jun 2025 - 09:45- Fixed IncomeData- Source: Newsquawk