EUROPEAN FIXED UPDATE: Benchmarks firmer given the risk tone, USTs await supply

USTs: +4 ticks, 113-17

• A firmer start to the day, but only modestly so. USTs at a 113-18+ peak, taking out the 113-16 high from Monday and now approaching the cluster of highs from last week between 113-20+ to 113-29.


• Upside that comes as equities fail to sustain the momentum seen yesterday to the benefit of FX havens and fixed, though XAU continues to slide; note, JPY also influenced by overnight trade developments, see FX for more.


• For fixed, specifics are a little light since Monday’s auctions. Firstly, the 2yr sale passed without impact, featuring an in-line cover though it did see the first tail, 0.1bps, for a 2yr tap since April. Thereafter, the 5yr tap stopped through by 0.1bps vs the when-issued, improving from the last outing. Additionally, the b/c marginally surpassed the six-auction average.


• Ahead, USD 44bln of 7yr notes due.

Bunds: +10 ticks, 129.67

• Firmer early doors, in-fitting with the above. A move that has since continued as, despite European equity sentiment lifting off worst, the tone remains a tepid one for the region.


• Bunds to a 129.73 peak, as is the case in USTs, this takes us above Monday’s 129.64 peak and closer to but yet to test the cluster of highs from last week between 130.02 and 130.38.


• For Germany specifically, we await a Bobl tap. Bobl auctions have been weak and deteriorating over the last few weeks, a narrative of note into a week that began with reporting around potential joint EU issuance for Ukraine. Furthermore, there may be some hesitancy ahead of Thursday’s ECB, though the implications of that are likely to be limited as the October meeting is expected to be a non-event from a policy perspective.


• For EGBs generally, the latest ECB SCE passed without impact with the 3yr and 5yr inflation views maintained while the 1yr view eased to 2.7% (prev. 2.8%).


• Elsewhere, France remains in focus as the debate around potential wealth taxes opens up today. The results of this will likely determine whether Lecornu’s 2nd attempt at government lasts or not in the near-term, as the Socialist Party have made clear that a workable compromise on wealth taxes is a key condition for their support. Into this, the OAT-Bund 10yr yield spread has widened a touch to 81bps, after spending most of Monday just below the 80bps level.

Gilts: +25 ticks, 93.90

• Gapped higher, acknowledging the modest bullish bias in EGBs that emerged into the European cash equity open. Opened higher by 18 ticks and then climbed another 13 to a 93.96 peak.


• In-fitting with the above peers this takes Gilts past Monday’s 93.70 best but unlike peers it has surpassed last week’s 93.93 best by a handful of ticks.


• UK newsflow remains focussed almost exclusively on the budget. The FT reported that the OBR is expected to cut its trend productivity growth forecast by about 0.3pps, a cut which equates to around a GBP 21bln hit to the fiscal situation. As a reminder, reports in recent weeks had generally been looking for a 0.2pps cut to the productivity view, equating to a GBP 14bln hit. If correct, the Chancellor will need to find another GBP 7bln from tax rises and/or spending cuts in the Autumn Budget.

28 Oct 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk