EUROPEAN FIXED UPDATE: Benchmarks propelled to WTD peaks as Israel strikes Iran, since pared & awaiting further updates

USTs: +2 ticks, 111-03

• Picked up overnight as geopolitical tensions provided a haven bid and added to the bullish action we have seen WTD from the cooler-than-expected US CPI and PPI data, in addition to robust 3, 10 & 30yr outings this week.
• USTs peaked at 111-13 overnight, a new WTD high and just a tick+ shy of last week’s 111-14+ best. If that is taken out, we look to 111-18 from mid-April before more significant resistance via a multi-week high at 111-25.
• Today’s docket is very light for the US, aside from preliminary UoM which is expected to print firmer across the board in June. As a reminder, the prelim May series was weaker than expected, but that was caveated to a degree by the collection period; thereafter, the final figure was revised up markedly.
• Data aside, the focus for today will be firmly on the geopolitical situation, as USTs are likely to firstly react as a haven as the recent better-than-expected inflation outturns provide some cover on that front, in the near term at least.
• As it stands, USTs are near-enough unchanged. Pulling back from the above high and holding just below Thursday’s 111-06 peak. A move that comes as the intensity of geopolitical developments slows slightly, as updates this morning have primarily been a tally of the damage done to Iran’s facilities and escalatory rhetoric from Iran in turn.

Bunds: -2 ticks, 131.30

• Bid overnight in-fitting with USTs. Hit a 131.95 peak, marking a new WTD high. A move that occurred given the risk-off action sparked by Israel striking Iran’s facilities and the associated FTQ that ensued.
• As mentioned, the furor of updates has eased a touch this morning and we are now primarily waiting to see what Iran’s full response will be, whether Israel will target more facilities and/or if the US will get directly involved; either by choice, or in retaliation to Iran’s response when/if it occurs.
• Given this, EGBs have pulled back markedly from the above peak and currently reside just in the red and 20 to 30 ticks below Thursday’s best; for Bunds, this has the benchmark holding around 131.20.
• A move that will also be a feature of participants' pricing in the inflationary implications of the spike in global energy prices that occurred on the attack, crude at one point higher by over 8%, and moves closer to home with Dutch TTF firmer in excess of EUR 1.50/MWh on the day.
• Given the above, the German 10yr yield fell by around 5bps to a 2.42% low when Bunds hit their WTD peak. Since, the 10yr has retraced the move and is now higher by just over a bps on the session, probing 2.50% to the upside.
• In brief, data this morning included final inflation metrics from Germany, Spain and France, measures were unrevised and sparked no move.

Gilts: -15 ticks, 93.04

• Directionally in-fitting with Bunds and the narrative is much the same.
• Hit a 93.68 peak when trade resumed this morning, gapping higher by 37 ticks and then extending another 10 to that high and eclipsing Thursday’s 93.55 best in the process.
• However, this proved short-lived as fixed benchmarks generally were already paring back much of their overnight gains and this pressure began to make itself known in Gilts within minutes of the open.
• As it stands, holding a few ticks above a 92.94 trough and by extension above Thursday’s 92.80 low.
• Elsewhere, specifics for the UK include the assessment of IFS’ Johnson that Chancellor Reeves only has a very slim margin of room to avoid having to raise taxes in the Autumn Budget (reminder, last week Deutsche Bank forecast a GBP 10bln tax increase in the autumn).
• More recently, the latest BoE/Ipsos survey had one-year inflation views revised lower to 3.2% (prev. 3.4%), though the view thereafter was maintained.