EUROPEAN FIXED INCOME UPDATE: Global paper higher as USTs look to claw back recent losses

USTs: +7 ticks; 110.01+

• After a soft start to the week on account of the Moody's downgrade and concerns over the deficit-impact of Trump's Tax/Spending Reconciliation bill, US paper is attempting to recover off the lows.


• Fresh US newsflow is relatively light after yesterday's passage of Trump's bill, which will now move to various Senate committees before being debated and voted on by the Senate floor. Updates on the trade front have been lacking after the G7 communique didn't provide much in the way of language on tariffs and reporting in CNN suggesting that US President Trump and Chinese President Xi have not spoken since the Geneva agreement.


• Today's Fed docket includes remarks from Goolsbee, Musalem, Schmid and Cook. However, they are unlikely to provide much sway on Fed pricing given that recent messaging from officials has been relatively consistent in noting that their hands are currently tied amid the uncertainty surrounding the economic outlook. As it stands, the next full 25bps cut is not fully priced until October with a total of 50bps of loosening seen by year-end.


• Jun'25 UST has ventured as high as 110.03+ with the next target coming via Wednesday's peak @ 110.10+. The US curve is currently in a mild bull-flattening mode with the 10yr yield hovering just above the 4.5% mark after venturing as high as 4.629% earlier in the week.

Bunds: +23 ticks; 130.08

• German paper is on the front foot and tracking gains in global peers. Downticks from a better-than-expected outturn for German GDP proved to be fleeting with the beat attributed to front-loading ahead of expected tariff actions by the Trump admin.


• On the trade front, the FT has reported that US President Trump is pushing the EU to lower tariffs or face additional duties with US negotiators to tell Brussels they expect unilateral concessions. Note, USTR Greer and EU Trade Commissioner are set to meet in June.


• On the speaker front, ECB dove Stournaras has stated that he sees a June rate cut and then a pause, whilst Rehn has backed a June rate reduction, data permitting. A slide deck has just been released from ECB's Lane but without the accompanying commentary, it is hard to infer much from it. ECB negotiated wage data is due to hit at 10:00BST. As it stands, a June 25bps cut is currently priced @ 95%.


• Jun'25 Bund is currently sitting just above yesterday's best @ 130.00 but down from its earlier session peak @ 130.28. From a yield perspective, the German 10yr yield ran into support at the 2.6% mark.

Gilts: +26 ticks; 90.73

• Gilts are higher despite a strong showing for UK retail sales in April (M/M 1.2% vs. exp. 0.2%, prev. 0.1%). Pantheon Macro writes "Three-month-on-three-month growth in retail sales volumes, at 1.8%, hit the strongest since July 2021, or ignoring Covid, since August 2018. The gain in retail sales will add around 0.1pp to April GDP growth, which sets the stage for solid quarterly performance".


• BoE's Pill is due to speak later in the session, however, he gave quite an extensive explanation over his dissent earlier in the week and therefore is unlikely to add much more that will be of use to markets. As it stands, the next 25bps rate cut from the BoE is not priced until November.


• After hitting a fresh MTD low yesterday @ 90.10, Gilts have ventured as high as 90.73. From a yield perspective, the UK 10yr yield is now back below the 4.75% mark with not much in the way of support until the 4.7% level.

23 May 2025 - 09:50- ForexData- Source: Newswires