EUROPEAN FIXED UPDATE: 10yr JGB sale bolsters bonds, modest move to cooler EZ HICP; Fed speak ahead

JGBs: -2 ticks, 139.14

• Japan’s 10yr sale was met with strong demand overnight and a very small price tail, a well-received outing that sparked immediate upside in JGBs and weighed on yields.


• However, this week’s test for the JGB market is the 30yr on Thursday. A sale that follows weak 40yr and 20yr outings in recent weeks.


• For reference, prior to the auction, BoJ’s Ueda said they may continue reducing government bond purchases next fiscal year, balancing predictability and flexibility. Adding, that they will be reviewing bond taper plans at the next meeting (June 16th/17th) and are aware of the view that some investors' appetite for super-long JGBs has waned.


• Overall, JGBs were lacklustre into the auction and unreactive to Ueda before picking up from 138.98 to 139.24 on the auction, weighing on the 10yr yield by ~5bps and the 30yr (ahead of Thursday’s auction) by ~4bps across the session as a whole.

Bunds: +24 ticks, 131.37

• Picked up at the resumption of trade, perhaps acknowledging ongoing trade uncertainty and the commentary from China in response to the EU on Monday taking action to limit China’s participation in healthcare.


• Thereafter, further but only very modest upside was seen in the wake of China’s Caixin Manufacturing PMI unexpectedly falling into contractionary territory. Next, as outlined in JGBs, a bounce was seen on the Japanese 10yr auction. A bullish move that continues throughout the morning.


• Hit a 131.49 peak just before the European cash equity open with drivers at the time light but as the risk tone began to come under some pressure. Benchmark chopped in a c. 20 tick band around the open before retesting the above peak as the Dutch government collapsed.


• Into the session’s main event for the bloc, Bunds were around 10 ticks off best but still posting gains of a similar magnitude. EZ Flash HICP came in cooler than expected across the board with a significant moderation in Services to 3.7% (prev. 4.0%). A release which sparked a few upticks in Bunds but the existing 131.49 peak was not tested. No significant change to market pricing, with June all-but-certain and the trajectory ahead much more uncertain.


• Ahead, German Schatz supply scheduled, before attention turns to US events, see below, and then remarks from Lagarde though the ECB is in its quiet period.

USTs: +10 ticks, 110-25

• As above, picked up on the Japanese auction and has continued to grind higher since. As high as 110-25, but so far at least has stalled ahead of a double-top at 110-30 from the two sessions prior.


• Yesterday’s on-paper main event via Chair Powell turned out to be a non-event as the Chair steered clear of monetary policy. Ahead, the docket features JOLTS, Factory Orders, RCM/TIPP, the latest Discount Rate Minutes and remarks from Fed’s Cook (voter), Goolsbee (2025) and Logan (2026); text release expected from all three.In terms of recent remarks, Cook has spoken about seeing some signs of stress among low/moderate-income households, Goolsbee spoke extensively on Monday on “excellent inflation reports” but is unsure if that will remain the case while Logan on Monday spoke primarily on the wait-and-see approach.

Gilts: +45 ticks, 92.00

• Began the day on the front-foot, given the outlined bullish bias. Specifically, it opened higher by 24 ticks and then climbed another 22 to take out last week’s 91.89 best and print a 92.01 peak for the day.


• Resistance features at 92.12 from the week of April 11th before 92.40 and 93.08 from the two weeks that follow.


• Newsflow so far for the UK has focussed on next week's spending review, and particularly an FT report that the deliberations are down to the last few major departments. The review will be outlined on June 11th, but Labour ministers will start to be informed of the details for their specific departments this evening.


• Elsewhere, Gilts keenly await today’s Treasury Select Committee, a hearing that begins with Breeden’s annual report and the re-appointment questionnaire from Dhingra before matters turn to May’s MPR.


• On that, we look for any further insight into the path forward for an increasingly divided MPC and for clues as to which of the five who voted for a 25bps cut made up the group of “most members” who judged the meeting as finely balanced if not for trade developments that occurred prior to the May gathering.


• Into the TSC, Gilts saw some modest movement to the DMO selling GBP 1.25bln of its 4.0% 2063 Gilt, a tap that was stronger than the prior with a particularly firm b/c; while Gilts themselves were not too affected, the associated 30yr yield hit a multi-week low on the tap.

03 Jun 2025 - 10:15- Fixed IncomeEU Research- Source: Newsquawk