EUROPEAN FIXED INCOME UPDATE: Gilts modestly out-edge peers following disappointing flash PMI metrics

USTs: +2 ticks, 112-25

• Came under modest pressure overnight, to a 112-21+ low before gradually picking up into and throughout the European morning. Upside that occurred despite the constructive European risk tone and the slight pressure seen in Bunds at the time.


• Nothing particularly fresh in European hours for US participants, as we digest the numerous Fed speakers seen yesterday and look to today’s packed docket featuring Chair Powell; remarks that will allow the Chair to give his rather than the overall Fed’s view on monetary policy and the economy. Within the comments, any language around the neutral rate will draw focus given the range of views outlined in recent sessions.


• Yesterday evening, Miran (50bps dissenter) said he sees policy as being appropriate in the mid-2% area, Hammack said she has one of the higher estimates and judges current policy as being only mildly restrictive.


• Note, no overnight cash trade owing to the Japanese holiday.

Bunds: -3 ticks, 128.24

• Began the day softer before lifting into the green in-line with USTs at first and then extending to a 128.41 high alongside the cash equity open, a figure that was retested on the weak French PMIs. Thereafter, the generally stronger German measures sent Bunds to a 128.15 low with downside of 11 ticks at most. Limited reaction to the EZ-wide figures.


• In more detail, the French measures came in weaker across the board and outside the forecast range. HCOB wrote that activity weakened more sharply than at any point since April and forward-looking indicators not suggesting any major improvements in the coming months.


• Germany was better, with composite and services measures beating consensus though manufacturing deteriorated and fell further into contraction. Highlighting a “nosedive” in September new orders for manufacturing and also services. One to watch to see if German fiscal stimulus turns out to be a less significant driver than originally thought.


• Finally, the EZ-wide figure printed firmer for composite and services while manufacturing acknowledged the weak performance of France and Germany. Further out, HCOB writes that “the outlook for manufacturing is looking a bit cloudy”; for the ECB, noting "Selling prices have cooled more noticeably, which might just prompt the ECB to consider whether a rate cut before year’s end could be back on the table.”

Gilts: +9 ticks, 90.90

• Opened near-enough unchanged. Modest action in-fitting with Bunds alongside the European PMI metrics. Thereafter, the UK’s own figures were softer than expected across the board and markedly so for the services and composite measures.


• Within the series, S&P said it brought a “litany” of worrying news with the only good news being a moderation of price pressure. Ahead, surmising that “...it’s unlikely that the economy will make any strong gains in the months ahead irrespective of the outlook for interest rates."


• A series that lifted Gilts by around 15 ticks to a 91.06 high with gains of 22 ticks at best. And at the time the clear outperformer.


• Before this, UK press has been focussed on the Resolution Foundation calling for Chancellor Reeves to break a manifesto pledge and increase income tax in the Autumn Budget, somewhat offset by a national insurance cut.


• Supply was poor. The first outing of the 2056 line saw a strong cover in excess of 3x but a substantial 20.5 tick price tail. Results of this weighed on Gilts and saw nearly all of the PMI move retraced, Gilts remain the outperformer but only marginally and are back towards the midpoint of 90.75-91.06 parameters.


• BoE’s Pill is due in just over one hour. Among other points, we look for further insight into his dissent on the APF decision (cut to GBP 70bln/yr from 100bln). Pill advocated

23 Sep 2025 - 10:20- Fixed IncomeData- Source: Newsquawk