EUROPEAN FIXED INCOME UPDATE: Lower trade into US PCE & Fed Governor Cook's hearing

USTs: -3 ticks, 112-15

• USTs are lower by a handful of ticks in what has been a quiet and rangebound trade overnight. Currently trading in a 112-13+ to 112-18+ range, as traders now turn their attention to the US PCE later today at 13:30 BST/08:30 EDT. Headline PCE is expected to rise by +0.2% M/M (prev. +0.3%), with the annual rate unchanged at 2.6% Y/Y; the core PCE rate is seen rising +0.3% M/M (prev. 0.3%).


• Data aside, focus has also been on further dovish remarks from the Fed’s Waller, who said that he would support a 25bps cut at the September meeting and anticipates additional rate cuts over the next 3–6 months. As it stands, money markets currently price in an 84% chance of cut in September, and fully price in two 25bps cuts by year-end.


• On the Trump-Cook saga, lawyers suggested an unintentional “clerical error” may have been behind the mortgage dispute over which President Trump wants her fired. It was separately reported that the judge in Fed's Cook lawsuit set the hearing for this Friday at 10:00EDT/15:00BST.


• From a yield perspective, trade over the past few trading sessions has been that of lower yields on the short-end and rising yields on the longer-end – Thursday saw a mild reversal of that trade, into month-end and PCE. As it stands, yields are incrementally firmer across the curve but with slight bear steepening.

Bunds: -3 ticks, 129.66

• Bunds are ever so slightly on the back foot, as European traders finally have some key data to digest, by way of Retail Sales/inflation metrics. Nonetheless, moves have been relatively contained so far.


• Starting in order of data releases, German Retail Sales was incredibly poor, printing below the most pessimistic of expectations – as such, Bund Sep'25 futures rose from 129.60 to 129.67 before paring a touch into the French inflation metrics, which were softer-than-expected and helped push Bunds back up to fresh peaks at 129.77. Thereafter, Spanish CPI (incrementally lower/in-line), German Unemployment Change (miss), German State CPIs (in-line with what is expected in the Mainland; i.e. uptick in Y/Y / downtick in M/M), Italian CPI (softer-than expected) all had little impact on price action.


• Focus for the region has also been on geopolitics. Following Russia’s barrage of attacks on Thursday, the White House said US President Trump was not happy about the overnight strikes in Ukraine and will be making an additional statement on Russia and Ukraine. Following the attack, German Chancellor Merz said there will be no meeting between Russian President Putin and Ukrainian President Zelensky – hitting sentiment for those optimistic about a peace deal.

Gilts: -14 ticks, 90.61

• Gilts are also trading on the back foot and are marginally underperforming vs peers. Currently trading in a 90.61 to 90.75 range; from a yield perspective, UK 10y is currently trading around 4.72%, still a little off the touted “danger zone” of 4.80% for the Chancellor’s budget.


• On that, a UK think tank IPPR (widely described as left-wing) recommended that Chancellor Rachel Reeves impose a windfall tax on commercial banks to reclaim profits earned from taxpayer-backed deposits at the Bank of England. A senior banker, speaking with the FT, said, “Politically it is an easy target… No one likes banks; they are seen as a whipping boy for the government”.

29 Aug 2025 - 10:10- ForexData- Source: Newsquawk