EUROPEAN FIXED INCOME: USTs are firmer whilst Bunds underperform given the positive risk tone

USTs: +5.5 ticks, 110-21+

• USTs are trading higher by a handful of ticks today and currently within a 110-19 to 110-24 range and trading towards the peak from Thursday at 110-25. Overnight US paper traded with a modest upward bias, in tandem with the upside seen in JGBs as traders position themselves ahead of this weekend’s upper house election. On that, polls suggest a decent probability of PM Ishiba’s coalition losing its majority; an outcome which ING suggests could add further pressure on long-dated JGBs.


• Back to the US, focus has been on commentary from the influential Fed Governor Waller; he continued to bolster his call for a 25bps cut in July. He added that the Fed should not wait until the labour market hits trouble before cutting rates and delaying cuts runs the risk of needing more aggressive action later. Though, he did highlight that a July cut could give the Fed space to hold rates for a few meetings.


• Trade updates have cooled down a bit in recent days; nonetheless, to recap some of the recent reporting, the White House said the EU continues to be very eager in trade negotiations. Elsewhere, on US/China relations, the US is set to impose a 93.5% tariff on graphite used for battery material from China.


• Focus was also on the latest Treasury International Capital (TIC) figures which showed USD 311bln net capital inflows in May vs. a USD 14bln outflow in April. Overall, in the face of the recent “sell-US” theme seen over the past couple months, the metrics show that investors have not lot confidence in the region.


• Docket today is headlined by another appearance from Fed’s Waller at 13:00 BST / 07:00 EDT. Elsewhere, on the data front, traders will keep an eye out on the release of building permits for June and housing starts. The University of Michigan preliminary sentiment data for July is expected to rise (exp. 61.5 from 60.7), though conditions are seen easing (to 63.9 from 64.8) as are expectations (exp. 55.0 from 58.1); last time out, the 1yr inflation expectation was at 5.0%, while the 5-10yr gauge was at 4.0%. In wake of today’s US data, the Atlanta Fed will update its GDPNow tracker, which was on Thursday revised down to 2.4% in Q2 from 2.6% prior.

Bunds: -30 ticks, 129.53

• Bunds have traded with a downward bias throughout the morning, and are the underperformer today. Nothing fundamentally driving the pressure today, but perhaps just a function of the relatively positive risk tone (equities higher / antipodeans outperform).


• Bunds traded with an upward bias overnight, in tandem with USTs, though this upside was ultimately unwound as European traders entered the fray. Currently trading towards the bottom end of a 129.53 to 129.82 range. Further pressure may see a dip below 129.50 and then towards Thursday’s low at 129.38.


• Newsflow and data docket has been relatively light so far; some focus on German Producer Prices, whereby the Y/Y figure printed in-line with expectations whilst the M/M component ticked higher from the prior and came in a touch above expectations. Elsewhere, ECB’s Nagel provided some comments, but thus far they have lacked anything pertinent to monetary policy.


• The recent EU Commission budget proposal has been subject to criticism by several member states; Hungarian PM Orban said the proposal will “ruin the EU”, whilst the Dutch Finance Minister said it will be “dead on arrival”. German Chancellor Merz admitted that it will be a “tough fight over the budget for the next two years”, whereby ING opines the final proposal will likely be watered down.


• Docket for the remainder of the day is null of any Tier 1 releases. Now traders will await the ECB next Thursday, which is expected to see rates held with just 1bps of easing currently implied by market pricing. Internal commentary will be scoured for council member’s views on the impact of tariffs/strong Euro, and then any clues on the timing for a next cut (pricing currently implies 22bps of easing by end-2025); as a reminder, Reuters reported that the ECB will discuss a more negative tariff scenario than previously envisaged in June.

Gilts: -17 ticks, 91.27

• Gilts are in the red, following EGBs, albeit to a lesser extent. Like above, downside today stems from the positive risk tone rather than any specific newsflow driven action. Trading in a tight 91.15 to 91.31 range, and currently just off the day’s trough. Today’s trough is a single tick above Thursday’s low, which also marks the WTD base.


• UK specific newsflow light; some focus on reports that BoE asked some lenders to test for resilience to US dollar shocks. On the BoE, there have been some updated calls from Citi/GS/MS; Citi expects the BoE to hold rates in Sept vs previously seeing a cut. The bank now expects sequential cuts to begin in November until March 2026, a rate path also shared by analysts at GS.

18 Jul 2025 - 10:05- ForexData- Source: Newsquawk