EUROPEAN FIXED UPDATE: A quiet start to the week for price action amid numerous holidays

USTs: +3 ticks, 111-08

• A quiet start to the week in terms of price action with Japan away overnight and as such, there was no cash trade. Furthermore, the European session is devoid of the UK given the nation's early-May Bank Holiday.


• As it stands, USTs are in a very narrow 111-06 to 111-13+ band and essentially unchanged on the session. Currently entirely within Friday’s relatively expansive 111-02 to 112-01+ band. Cash trade resumed in the European morning with yields mixed but the curve slightly steeper overall.


• Despite the quiet start for price action the weekend’s newsflow was extensive, featuring numerous US-China updates. On the one hand, Trump said he is willing to lower the tariffs on China at some point as the current levels have essentially stopped trade. However, on the flip side, the US announced 100% tariffs on movies produced in “foreign lands”; of note for China, the world’s second largest film maker.


• Ahead, we get the ISM Services figure, expected to come in at 50.2 (prev. 50.8) in contrast to the better than expected Manufacturing survey last week; the service side of the economy could come into heightened focus in the months ahead if nations, particularly China, retaliate to the above US measures on movies. Thereafter, a US 3yr note auction is the evening’s highlight before Tuesday’s 10yr and Thursday’s 30yr, given Wednesday’s Fed.


• On the Fed, markets currently imply just a 2% chance of a 25bps cut in May. The odds of easing have continued to ease since Friday’s robust Payrolls report, a report that provides the Fed with sufficient breathing room to continue its wait-and-see approach. This pullback is also evidenced further out, currently by end-2025 80bps of easing is currently implied vs just shy of 90bps before Payrolls.

Bunds: +6 ticks, 131.10

• Also contained but in a slightly more expansive 130.69 to 131.14 band, the low just about took out last week’s 130.83 base. The low print occurred in the early European morning, as volumes picked up from very thin overnight levels as European players entered the fray.


• The EZ docket is light, Sentix for May came in much better than expected but still remains well into negative territory. No reaction to the data.


• Elsewhere, it is worth keeping an eye on OATs (currently trading in-line with Bunds) amid reports in French press that PM Bayrou is looking into calling a referendum to get public support for deficit/debt reform, an approach he is considering given the difficulties he will undoubtedly face in passing the 2026 budget through the National Assembly. Of note, the reports confirm that Bayrou is not looking at any fresh taxation.

05 May 2025 - 09:50- ForexEU Research- Source: Newsquawk