EUROPEAN FIXED UPDATE: Benchmarks diverge once again but are contained with newsflow light thus far

USTs: +8 ticks, 109-31

• A firmer start to the session but much more modest than has been the case in recent days. As it stands, USTs are rangebound just below the 110-00 mark and well within Friday’s 109-08 to 110-21 band.


• The focus this morning is, as usual, on tariffs. Risk sentiment has been supported by the announcement of some tariff exemptions for smartphones etc, however, Trump clarified this weekend that there are no exemptions with the measures just moved into different categories i.e. fentanyl.


• Nonetheless, given Trump has already provided China with a pathway to a climbdown on fentanyl tariffs (several weeks ago he intimated all it would take would be a call from Xi to make progress on this) markets are taking it as a constructive development. As such, USTs are a touch firmer as the sell-US trade takes a breather here, though the USD remains subdued (see FX).


• On that, the likes of ING have already begun to highlight the May 16th TIC data as a key point to watch, as this may give some insight into whether China was selling USTs in the period.


• Yields continue to steepen, pressure is seen at the short end but is well within recent parameters while the long end is flat/picking up, again within familiar levels.

Bunds: -20 ticks, 130.80

• In the red but, as with USTs, rangebound throughout the European morning and comfortably within Friday’s 129.92-131.42 band.


• Specifics for the bloc light this morning, attention in Europe is of course on trade/tariffs but earnings season is getting underway and macro commentary from LVMH after the cash equity close could be pivotal for the region.


• On the subject of trade, EU negotiator Sefcovic is scheduled to meet with US counterparts in Washington today, though details around this are a little light.


• More broadly, we look ahead to Thursday’s ECB where a 25bps cut is priced and attention will be on forward guidance given the significant economic uncertainty that has emerged recently. Additionally, with an eye on spreads (BTP-Bund around 120bps now, hit 135bps last week), any commentary/sources around TPI or other tools.


• On the periphery, BTPs outperform with gains in excess of 50 ticks after S&P raised Italy’s sovereign rating by one notch to BBB+ from BBB; Outlook Stable; citing reduced deficits and resilient exports, despite weak growth and rising debt.

Gilts: +45 ticks, 91.10

• A firmer start as Gilts gapped higher by 38 ticks. A move that acknowledged the action seen late-doors on Friday and is also a function of Gilts finding some reprieve from recent marked selling pressure.


• However, like its peers, the benchmark remains well within Friday’s 90.47-91.75 band. After gapping higher at the open Gilts extended a touch to a 91.24 high, but have reverted back to and remain at opening levels just above 91.00.


• UK specifics have seen the government announce that global tariffs are to be suspended on around 90 foreign products. Note, despite reported progress on a US-UK deal prior to “Liberation Day”, Politico overnight wrote that the US is said to be prioritising trading partners that are strategic to China, with the US in talks with Japan, South Korea, India and Vietnam.

14 Apr 2025 - 09:50- ForexEU Research- Source: Newsquawk