EUROPEAN FIXED UPDATE: Benchmarks lifted by China's latest retaliation but remain on track to end the week with significant losses

USTs: -4+ ticks, 110-14+

• A softer start to the day but one that leaves USTs just off the overnight 110-01+ trough, a low which printed as the benchmark faded initial strength on Thursday despite a strong 30yr tap. Action occurred as the risk tone stateside began to lift and as the yield curve steepened further.


• Currently, holding a handful of ticks above that low but still in the red and set to end the week with downside of around 100 ticks. Amidst this, as discussed, yields steepen though the action is off the extremes that printed on Wednesday when 2s10s neared 75bps.


• Today and during the weekend we await updates from POTUS who said that the first tariff deals are very close. Trade aside, PPI will be scrutinised ahead of PCE after the cooler CPI print on Thursday.


• Most recently, China unveiled its response to the latest US measures, the response is effective from April 12th and once again essentially matches the US action. Interestingly, the accompanying statement from China may imply that they will not respond to further retaliation. “... if the US side subsequently continues to impose tariffs on Chinese goods exported to the US, the Chinese side will pay no attention to it.” seemingly taking the view that further increases are pointless as demand elasticity has been exhausted.


• Note, this was also accompanied by the line that China will take countermeasures if the “US insists on infringing on China's interests in a substantive way”, so one interpretation may be that the bar to China retaliating further via tariffs has been raised, but a response remains an option; as China could elect to retaliate via export control measures or similar, instead of outright tariffs.


• Only a modest uptick in USTs to the update, keeping them within the existing 110-01+ to 110-15 band.

Bunds: +20 ticks, 130.56

• Softer throughout the morning but only modestly so with the benchmark handing onto the pickup, relatively speaking, that occurred in the later part of the European/US session on Thursday.


• As such, the benchmark spent the morning in the red but holding around 20 to 30 ticks above the overnight 129.92 base. Most recently, a bout of strength emerged as China retaliated (discussed in USTs), lifting Bunds from 130.04 to 130.36 before then extending to a 130.56 session high and into the green by around 15 ticks.


• However, Bunds have begun to drift from that high and are teetering on a return to the red once again.


• Ahead, the European docket is a little light with the ECB now in its quiet period; markets currently fully price a 25bps move (no implied probability of 50bps as it stands) with 83bps by end-2025. Of course, if next week proves even a fraction as wild as this week then implied pricing could still change significantly.

Gilts: -52 ticks, 91.19

• Opened lower by a handful of ticks, in-fitting with the bearish bias in Bunds and USTs at the time and also acknowledging the strong GDP data for February.


• On the data, while the metrics were strong and have been welcomed by the Chancellor, the series will ultimately be looked through given just how much has changed since then. Nonetheless, the benchmark then fell from a 91.62 open to a 90.78 trough as it reacted to the data, overnight bearishness in peers and pulled back from the marked strength seen on Thursday.


• Net, Gilts find themselves just about the 91.00 mark having been lifted back above it by the China retaliation.


• For the week as a whole, Gilts are set to end it with losses of around 300 ticks but are over 100 ticks above the 89.99 trough.

11 Apr 2025 - 10:05- Fixed IncomeData- Source: Newsquawk