EUROPEAN FIXED UPDATE: Benchmarks bid amid the deteriorating risk tone and reports around AA rating criteria

Bunds: +16 ticks, 130.10

• A contained start to the day, with Bunds initially firmer but only by a handful of ticks in a quiet early morning where newsflow was dominated by stock specifics and events in Japan.


• Since, benchmarks generally but initially OATs derived a bid from a Bloomberg article that BlackRock (BLK) and State Street (STT) have recently stopped using indexes with AA rating criteria as the benchmark, according to sources. Meaning that the firms will continue to be able to hold French debt even after the downgrade by S&P on Friday.


• This lifted OATs to a 123.29 peak for the season with gains of 17 ticks at most.


• For Bunds, this report seemingly provided some support alongside a slight deterioration in the risk tone around the European cash equity open. Points that were sufficient to spark a 130.18 peak, taking out yesterday’s 130.02 best and approaching 130.43 and 130.59 from last week.


• No reaction to remarks from ECB’s Lane this morning. A speech/text that had some interesting points, but ultimately stuck to familiar lines on EZ monetary policy. Ahead, Lagarde and Nagel are scheduled with a text expected from the President.

Gilts: +13 ticks, 92.79

• The morning’s PSNB data showed a slightly lower borrowing figure than expected, though a touch above the OBR’s view from March, while the prior was subject to a revision lower. For the FY to September 2025, borrowing stood at GBP 99.8bln vs the GBP 92.6bln forecast by the OBR in March.


• Overall, the data continues the narrative of elevated and above forecast borrowing, which will need to be reflected in the OBRs updated economic view; however, the yield narrative has improved in recent sessions and while this was too late to impact the September series, it will be reflected in the data set for release just before Chancellor Reevesʼ Autumn Budget is published on November 26th. However, by that point, the OBR will have finalised its forecasts.


• Modest outperformance in Gilts this morning, seemingly a function of the slightly better than expected borrowing view. To a 92.92 peak with gains of 25 ticks at most. If the move continues, resistance from last week factors at 93.02 and 93.17.


• Ahead, BoE’s Bailey and Breeden appear before the House of Lords; however, as they are discussing reform since 2008, it remains to be seen whether the remarks will factor into the discussion around current policy.


• Elsewhere, Chancellor Reeves is due to speak just after 10:00BST. Remarks that have been previewed as red-tape cutting, in a bid to support domestic firms and attract investors.

USTs: +3 ticks, 113-22

• Firmer, moving directionally in-fitting with peers as outlined above.


• Thus far, to a 113-24 peak but with upside of just a handful of ticks at most. Ahead, the US docket is focused on several pertinent earnings releases and comments from Fed’s Waller; however, the blackout period is in force ahead of the October policy decision.


• More generally, we await any development on the US-Russia-Ukraine situation as the planning for a leaders meeting appears to have taken a hit with the Lavrov-Rubio meeting postponed. The joint statement from European leaders on this is seemingly attempting to place the blame for that postponement on Russia, i.e. in an attempt to get Trump back firmly on Ukraine’s side, in-light of the tense meeting between Trump and Zelensky last week.

JGBs: +3 ticks, 136.06

• Stronger overnight as markets awaited the parliamentary votes on the next Japanese PM and also acknowledged stronger demand at the latest climate-related auction.


• However, the move was fleeting and comfortably within yesterday’s parameters, with the benchmark ultimately residing near opening levels of 136.03 with gains of just a tick or two as things stand.LDP’s Takaichi secured sufficient support and will be the next Japanese PM. She is expected to provide remarks at around 14:00BST today.

21 Oct 2025 - 10:00- ForexEU Research- Source: Newsquawk