EUROPEAN FIXED UPDATE: Benchmarks reel as Trump hits steel, BoE's Mann and Fed's Powell in focus

USTs: -4+ ticks, 109-02+

• A slightly constrained start to the session on account of a Japanese holiday and as such there was no overnight cash UST trade. Nonetheless, the bias is bearish as participants digest and assess the inflation implications of Trump’s latest measures and commitments to respond from Canada and the EU.


• Action which has weighed on USTs to a 109-01+ trough, a tick below Monday’s base but just above the 109-01 low from Friday. Below that, a small gap before support at 108-20+ and 108-21+ from last Tuesday and Monday respectively.


• Ahead, we await any further tariff updates from Trump with attention on him signing executive orders at 15:00EST (note, there are some inconsistencies between scheduled on this time).


• Thereafter, the scheduled main-event is Fed Chair Powell’s testimony to the Senate, within this he will largely reiterate lines from the latest FOMC. Nonetheless, participants will be attentive to any readout from his meeting with Treasury Secretary Bessent which was reported as being constructive. Additionally, to see if Powell comments on Trump’s tariffs, though he will likely reiterate uncertainty ahead.


• Powell aside, voters Williams and Bowman are scheduled in addition to 2026 voter Hammack; the latter due to give remarks on the economic outlook. Finally, the week’s supply gets underway with USD 58bln of 3yr notes due.

Bunds: -38 ticks, 133.13

• A similar story to the above but with more pronounced downside given the inflationary implications for the bloc of Trump’s action. In response, the French Industry Minister said they should respond firmly while German officials called for greater European unity (reminder, Germany has an election in just under two weeks).


• Most pertinently, EU Commission President von der Leyen said they will trigger firm and proportionate countermeasures while Trade Commissioner Sefcovic remarked that closer ties with Gulf nations are being looked at.


• Bunds down to a 133.09 base, have seemingly found a slight floor just above the 133.00 mark as European equity performance deteriorates into the red from tentative opening gains. If the pressure continues, then we look to 132.95 from Friday before 132.72 and 132.41 from last Tuesday and Monday respectively.


• US-related updates aside, the European docket features German 2030 Bobl supply which should go well given its strong history and relatively limited duration entering the market in proximity. However, some competition may come from Italian syndication which has thus far received reported demand in excess of 83bln for the 15yr BTP.


• Thereafter, attention turns to ECB’s Schnabel. Remarks which, among other points, will be sought for her view on Trump’s tariffs and the recent ECB Neutral Rate publications. As a reminder, the bulletin estimated the neutral rate at 1.75-2.25% (in nominal terms), broadly unchanged since end-2023. Schnabel has previously remarked that she sees it between 2.0-3.0%.

Gilts: -26 ticks, 93.20

• In-fitting with the above. Not quite as pressured as Bunds but not far behind, some modest recent respite has come from reporting around the 2035 Gilt syndication which just before books closed had reportedly attracted orders in excess of GBP 130bln.


• An update which has, alongside the modest deterioration in the equity risk tone and reports via The Times’ Swinford that the UK is not expected to announce retaliatory measures against the US, helped to lift Gilts off a 92.13 trough by just over 10 ticks.


• On potential retaliation, Swinford cites a senior gov’t source as saying such measures would have little impact and would ultimately provoke Trump further. Further to this, Chancellor Reeves told Bloomberg’s Wickham that she would speak with her counterpart to try to come to a deal.


• Prior to these reports, a length text release dropped from BoE dissenter Mann (voted for 50bps cut, decision was 25bps). A speech which sparked a modest hawkish move as the release made clear that Mann continues to favour and wants to maintain “policy rate discipline and restrictiveness”.


• Further, post-text, Mann has said it would not be a full reading of her remarks to say a 50bps cut now (i.e. Feb.) and 50bps next time. As Mann continues to speak Gilts are waning slightly back towards the aforementioned low, if that is breached then support factors at 92.95 and 92.94 from last week.

11 Feb 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk