EUROPEAN FIXED UPDATE: Benchmarks slightly firmer into US data and Fed's Powell

USTs: +4 ticks, 109-27

• Another contained start for fixed income with USTs marginally in the green while peers across the pond resided slightly in the red in the early morning.


• USTs at a 109-26 peak with gains of a handful of ticks. While firmer, the benchmark remains markedly shy of peaks from the last three sessions at 110-09+, 110-15 and 110-19+ respectively.


• While essentially unchanged currently, the benchmark enters the tail-end of the week with losses of over 20 ticks WTD. Pressure which comes primarily after the US-China progress seen on Monday and an accompanying hawkish adjustment to near-term monetary policy expectations thereafter.


• Insight into this will be gleaned via PPI, feeds into PCE and follows on from CPI earlier in the week, a release which points to some tariff-related price pressures though not to a significant degree just yet and with PCE likely to be subject to the offsetting influence of a decline in air travel. Thereafter, Retail Sales will be scrutinised to see how the consumer is faring into the tariff-window and if the indications from some soft data are evidenced in the report.


• Thereafter, the potential main event of the day is Chair Powell. At the FOMC, Powell stuck to a data-dependent and wait-and-see approach. Since, we have seen a breakthrough on US-China relations and a repricing of Fed expectations, down to around 50bps of implied easing by end-2025 vs over 70bps last Friday. From Powell, we look for any endorsement of or pushback against this repricing and his view on recent data.


• Though, the Chair will most likely steer away from any fresh guidance and instead stick to the known script.

Bunds: +4 ticks, 129.43

• As above, the initial dynamic was one of modest pressure. Newsflow for the bloc has been light. The docket features a few ECB speakers, though the officials on the schedule and topics they are focussing on are not indicative of anything particularly ground-breaking emerging.


• Data wise, Flash Estimate GDP due, but expected unrevised (the second reading). Instead, the complex will be focussed on the discussed events stateside for broader macro direction.


• Into the afternoon, Bunds find themselves attempting to make a footing above the break-even mark at the top-end of a 129.13 to 129.47 band.

Gilts: +9 ticks, 91.14

• Broadly in-fitting with Bunds, began the morning a touch firmer, gapped higher by 17 ticks, before then slipping to a short-lived 91.02 low given the read across from EGBs at the time. Currently, at the mid-point of a 91.02-22 band.


• Growth data for Q1 came in much better than expected as the March figures beat consensus a touch, though were shy of the prior figures. In short, the UK appears to have held up a touch better than thought heading into the tariff window; however, the effects of that are yet to be seen in the hard data and even though the UK was out the door quick with a deal, the 10% baseline will still weigh.


• Overall, the data hasn’t had much bearing on BoE pricing and is unlikely to change the MPC’s narrative, with officials in recent days outlining a focus on wages and household price expectations, among other points.


• Ahead, aside from the above, BoE’s Dhingra is due to speak. While her views as the stand-out dove on the MPC are well known, it will still be interesting to see what she has to say on recent developments. More broadly, any indication that she wavered between 50bps or 25bps (reminder, “most” of the five who voted for 25 bps were swayed from a edging towards a hold to supporting a cut by recent developments) will be of note.

15 May 2025 - 09:55- Fixed IncomeData- Source: Newsquawk