EUROPEAN FIXED UPDATE: Benchmarks await Powell part 2 and details from the NATO summit

JGBs: +1 tick, 139.42

• Initially bid, catching up to some of the gains seen in peers on Tuesday. However, the move was capped by two notable factors.


• Remarks from dissenter-Tamura. Commentary included reiteration that 0.5% is not a barrier for policy tightening, believes inflation is either on track or somewhat stronger than expected and outlined that upside in food prices can no longer be described as temporary.


• Elsewhere, the June SOO included the line that “increased volatility in the super-long-term zone might spill over to the entire yield curve, thereby spreading unintended tightening effects to the market as a whole.”


• Together, these factors capped the initial bid and brought JGBs down to 139.26 from an initial 139.42 peak. However, this itself was superseded by US-driven bullish bias and as such JGBs resumed their initial ascent, to a 139.50 high.

USTs: +1 tick, 111-21

• Fed Chair Powell is set to provide testimony to the Senate today. House testimony on Tuesday saw the Chair remark that “many paths are possible” when questioned on a July cut, testimony which spurred a bid in USTs. A move that was added to by Fed speak thereafter as Hammack and Williams struck a broadly similar tone.


• Powell aside, the main scheduled event is 5yr supply. An outing that follows a relatively robust 2yr tap.


• Action this morning has USTs hold onto the discussed gains from Tuesday. At the upper-end of a 111-17+ to 111-23+ band and 1+ ticks above Tuesday’s best; though, this leaves the benchmark essentially flat on the session. If the move resumes, then 112-23 was May’s peak. On the flip side, a pullback hits support at 111-05, 110-25 and 110-16 from the last three sessions.


• Given the dovish skew of Fed speak, yields came under pressure on Tuesday and have been extending on that today. 2yr yield down to 3.78% and the 10yr to 4.27%, vs 3.91% and 4.40% respectively at the start of the week.

Bunds: -5 ticks, 130.80

• A firmer start to the day. Bunds were the upper-end of a 130.61 to 131.12 band, after being relatively contained in APAC trade around that low, a bid emerged in the European morning as the region's risk tone deteriorated.


• No clear or specific fundamental driver behind the European tone deteriorating, US futures largely unfazed, or by extension the upside in Bunds. However, it is with nothing the benchmark didn’t rally as much as USTs on the discussed Fed commentary, and are possibly reacting to that and/or moving past the bearishness on Tuesday from the Finance Ministry’s updated Q3 issuance plan and commentary on Q4.


• However, as the morning has progressed a slight pullback in the bullish direction has occurred, Bunds still comfortably within the above parameters but now essentially flat; again, no clear or specific fundamental driver behind this, though the pressure did intensify slightly alongside the UK auction (see Gilts).


• Specifics otherwise light so far, docket ahead devoid of speakers and as such impetus will likely be drawn from any updates at the NATO summit (broad consensus around the 3.5% + 1.5% commitment, Spain the holdout), and Powell’s second day of testimony.

OATs: +9 ticks, 124.23

• In focus after the Socialist Party (PS) on Tuesday announced that the government's “unfulfilled commitments on pensions” and other issues mean that they will have to file a motion of censure against PM Bayrou’s government.


• The motion has not yet been filed, the date of filing is important as it determines when the censure motion will be voted on (vote cannot occur until 48hrs after filing); Politico believes next Tuesday is the preferred day among the PS.


• While the motion will be put forward by the left, those on the right and particularly National Rally (RN) have cautioned that they could oppose Bayrou given points of disagreement on other issues; together, PS, RN and their allies could bring Bayrou’s government down.


• The benchmark itself trades slightly stronger than its German peer, but only modestly so. At the upper-end of a 124.02 to 124.57 band, a handful of ticks above Tuesday’s best.

Gilts: -12 ticks, 93.35

• Trading in-line with USTs at first. Spent the morning at the upper-end of a 93.33-57 band. Specifics for the UK are very light, no commentary from BoE’s Lombardelli or Pill while supply was robust on the main metrics but saw a particularly chunky 10bps price tail. Results that pushed Gilts back to the above trough and into the red.


• Ahead, the docket features BoE’s Greene before another potential appearance from Lombardelli.


• As such, impetus is also likely to be derived from events in NATO and the US today.

25 Jun 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk