EUROPEAN FIXED INCOME UPDATE: UK paper bucks the trend seen in global peers ahead of Wednesday's spring statement

USTs: -6.5 ticks; 110.28+

• US paper is lower amid the encouraging risk environment on account of weekend reporting over the Trump tariff agenda. To recap, Trump is set to announce (April 2nd) widespread reciprocal tariffs on nations or blocs but is set to exclude some and the administration is currently not planning separate, sectoral-specific tariffs to be unveiled at the same event as Trump had once signalled. This would provide some relief for the market, albeit would ultimately lead to a deterioration in the global trade outlook.


• Todays' docket is light on data but with Fed's Bostic and Barr due to speak. However, the main messaging from Fed speakers at the back end of last week was one of uncertainty over the path ahead. The main data highlight this week comes on Friday via monthly PCE metrics with the core M/M rate seen holding steady at 0.3%. As it stands, market pricing fully prices the next 25bps reduction by July with a total of 69bps of loosening seen by year-end.


• Jun'25 UST is currently holding comfortably above the March 19th trough @ 110.26+. The curve is mildly bull-flattening with the US 10yr yield eyeing 4.3% to the upside with a current session high @ 4.292%.

Bunds: -16 ticks: 128.32

• Bunds are lower and tracking the price action seen across global peers. Focus in the Eurozone today has fallen on regional PMI metrics, whereby France kicked off proceedings with all three key measures beating on expectations and improving from their priors. Thereafter, the German and Eurozone metrics showed a mixed trend whereby, manufacturing beat estimates and rose from the priors, services unexpectedly fell with composite improving but not by as much as expected. The accompanying report noted "while we should not be carried away by a single data point, it is noteworthy that manufacturers expanded their output for the first time since March 2023".


• Elsewhere, despite the recent fiscal reform package approved by the German Parliament, the Q2 German issuance forecast was unchanged from the December forecast.


• Jun'25 Bund has delved as low as 128.04. If 128 gives way, this will open up a test of the 19th March low @ 127.88. The German 10yr yield is currently capped by resistance at the 2.8% mark. If this gives way, the recent peak sits around the 2.94% mark.

Gilts: +16 ticks

• UK paper is bucking the trend seen across major global peers following the notable selling seen on Friday in the wake of disappointing public spending data.


• Today's session has seen the latest UK PMI metrics which saw an improvement and beat on expectations for the all-important services metrics and a disappointing outturn for services. Overall, this filtered through into a beat for the composite metric. The accompanying report noted that “The signal from the flash PMI is an economy eking out a modest expansion in March, consistent with quarterly GDP growth of just 0.1%, but with employment continuing to be cut thanks to concern over costs and the uncertain outlook".


• For this week's agenda, attention will be on the fiscal sphere with UK Chancellor Reeves set to deliver her spring statement on Wednesday with the Chancellor set to unveil a slew of spending cuts as she attempts to regain some of her lost headroom since the October budget. Note, the Chancellor has said she will refrain from hiking taxes this week. Analyst forecasts indicate a significant downward revision in GDP projections and adjustments in gilt issuance for the coming fiscal years.


• Elsewhere, UK inflation data for February are due on the same day. Expectations are for headline Y/Y CPI to slip to 2.9% from 3.0% with the core metric set to tick lower to 3.6% from 3.7%.


• Jun'25 Gilts have ventured as high as 91.91. If 91 gives way, Friday's high sits @ 92.18. From a yield perspective, the 10yr is currently holding just above the 4.65% mark with interim support provided by Friday's low @ 4.653%.

24 Mar 2025 - 10:05- ForexData- Source: Newsquawk