EUROPEAN FIXED UPDATE: Benchmarks bid early doors but off best since, USTs look to the FOMC

USTs: -2+ ticks, 110-23

• Benchmarks generally caught a bid early doors alongside a drop in the risk tone. A move which continues the risk-off action seen on Tuesday but with the BoJ/Ueda, Turkish turmoil, digestion of the Putin-Trump call (particularly as the energy ceasefire has seemingly already been broken) and continued tariff uncertainty ahead of April 2nd also perhaps factoring into the action.


• USTs hit a 110-27 peak, stalling just before the proceeding sessions’ 110-29 and 110-30 respective highs. Specifics a touch light this morning as we digest the readout from Putin-Trump and count down to the FOMC (newsquawk preview available).


• On the Fed, pricing is almost entirely in favour of an unchanged outcome with the next cut not implied until the July gathering. Focus for the meeting will be commentary around the economy (given recent data/trackers, i.e. Atlanta Fed) and, by extension, the FOMC’s view on policy ahead. As a reminder, the current dot plot looks for two more 2025 cuts, a pace Waller has suggested is still the base case.


• Rates aside, any clues on the Fed’s QT programme will be sought after the prior meeting’s minutes highlighted it as a point of discussion. As it stands, ING calculates that the programme would see bank reserves dip to USD 3tln by-2025, a figure which is around 10% of GDP and is seen as a rough floor for the Fed, with the desk believing that a single-digit level would be the point that QT is completely wound down.

JGBs -5 ticks, 138.06

• Came under pressure into and after the BoJ itself which was very much as expected and hit earlier in the session than is usually the case, potentially indicating that there wasn’t much debate/deliberation in the gathering.


• Thereafter, Ueda’s press conference began with him sitting on the fence and as such JGBs got back to their 138.25 peak before pulling back sharply to a 138.07 base, where it remains, as Ueda turned slightly more hawkish.


• In particular, he noted that wage trends are 'on track', or slightly stronger and there was a view at today's meeting that there was upward pressure on inflation with some members expressing the need to pay attention to price overshoot risks.

Bunds: +36 ticks, 128.24

• Firmer but off best as the general fixed income rally seen in the European morning takes a slight breather and with Bunds specifically also acknowledging near-term dual tranche supply.


• At the upper-end of a 127.88-128.66 band, making a new WTD high. Above this, resistance is a little light until the 129.00 mark and thereafter there is another sizable gap before 129.96. Given this, yields are lower across the curve which itself is a little flatter.


• As mentioned, the rally occurred without a specific driver but was potentially a function of the BoJ (though, Ueda became more hawkish as it went on), Turkey and deterioration in the general risk tone - the latter potentially a function of participants digesting the energy ceasefire and Russia seemingly continuing to strike such infrastructure in Ukraine despite the Putin-Trump readout.


• The docket ahead for the bloc, aside from supply, is packed with speakers as ECB’s Centeno, de Guindos, Elderson & Villeroy are all scheduled. More broadly, we count down to the FOMC (see USTs).


• On the fiscal front, today provides a bit of a breather following the passing of Merz’s reform in the Bundestag on Wednesday and ahead of its appearance in the Bundesrat on Friday, where the bill should be ratified. Reminder, the new Bundestag is scheduled to sit for the first time next Tuesday.

Gilts: +8 ticks, 92.25

• Finds itself back to trading between USTs and Bunds after leading the action for a change on Tuesday. Focus for today, aside from the above macro points, is on PMQs where details will be sought on the disability reform Labour announced and whether the cost savings from this go far enough to restore headroom.


• Furthermore, PM Starmer will undoubtedly be pressed on the Putin-Trump call and will have to give a more substantial assessment than the initial language provided overnight.


• Holding just above the unchanged mark in a 92.18-48 band, early action marked a marginal new WTD peak.

19 Mar 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk