EUROPEAN FIXED UPDATE: Benchmarks weighed on by the TSMC-driven risk tone, Gilts underperform

Bunds: -13 ticks, 129.50

• Slipped earlier doors, hit marginally by TSMC’s Q2 report and then more significantly when the name provided strong guidance for Q3 (see Equities) as the broad risk tone picked up.


• Over the early European morning, Bunds fell from the c. 129.60 level that they had been meandering around overnight to a 129.47 low before the European cash equity open and since to a 129.38 base. As it stands, the benchmark is lower by around 10 ticks but above the current trough by around double that.


• If the move continues, Bunds look to a double-bottom at 129.19 from Tuesday and Wednesday before Monday’s WTD low at 129.08.


• TSMC aside, overnight trade updates add to the bearish tone for fixed and constructive European risk sentiment as Trump said the US could “possibly” make a deal with the EU.


• Elsewhere, newsflow for the bloc generally is focused on the MFF, something that will dominate EU updates for the next two years. So far, the framework has drawn criticism broadly as you would expect from the various EU member nations.


• Supply from Spain passed without reaction as is usually the case, though the b/c for the 2048 line was weaker than normal. France, was strong overall though some modest pressure was seen in OATs on the results, potentially driven by the sub-3x b/c for the 2031 line.

USTs: -3 ticks, 110-16

• Gradually drifting overnight after being driven to a 110-21+ peak in the US afternoon, a high that occurred in a continuation of the post-PPI move and as USTs picked up after the Powell reporting and subsequent pushback by Trump.


• In brief, Trump reportedly drafted a letter to fire the Fed Chair and showed it to various Republican officials. Thereafter, Trump pushed back on this saying it is highly unlikely he would fire Powell, unless there is fraud.


• Despite its denial, the report spurred a marked reaction with yields at the short-end of the curve falling (likelihood of a new dovish Chair and rate cuts) while long-end yields rose (view that cuts in the near-term could lead to higher inflation and a need for tightening further out, alongside Fed independence risks); i.e. the yield curve steepened, with 2s30s steeper by 13bps at most on Wednesday.


• USTs themselves were more nuanced. Eventually they picked up and hit the mentioned high, however, the initial reaction was two-way in very volatile trade as the 10yr was caught between the above short/long-end move and concern around Fed independence.


• Today, USTs have been gradually easing from the overnight peak, given the broader risk tone and influence of TSMC as discussed. Thus far, down to a 110-13 base which takes them back to roughly where they were before the first Powell reports hit. Currently, holding a handful of ticks off that low, but still very much in the red.


• Ahead, the docket is dominated by Fed speak. As a reminder, we had numerous officials overnight but none that changed the macro narrative. Today, Kugler (voter), Cook (voter) and Waller (voter) are all expected to release a text while Daly (2027) will be on Bloomberg TV. From these, Waller is on paper the most interesting as he and Bowman have been open to the concept of a July move.


• Speak aside, Retail Sales due. Ahead of this, the Bank of America monthly consumer checkpoint data suggests that there was an overall rise of +0.7% M/M in June, though services spending is seen slipping for a third straight month. Thereafter, the Atlanta Fed will update its GDPNow tracker, currently at 2.6%. Finally, May’s TIC data will be scrutinised for evidence of concerted flows from USTs, a month that began with USTs at 112-23 and left them at 110-24.

Gilts: -24 ticks, 91.30

• Underperforming. Hit at the open given the bearish bias from peers (see above), and also the morning’s jobs data.


• In brief, the series showed that the labour market is continuing to weaken with the Unemployment Rate unexpectedly ticking higher and another negative print for the HMRC Payrolls Change. However, this is caveated by a significant revision to the prior HMRC figure (and measures from earlier in the year), though still in negative territory, and a smaller-than-expected moderation in the ex-bonus Average Wage metric alongside upward revisions to both wage measures.


• Overall, the series is on-balance unlikely to change the BoE’s trajectory at this stage, with the continued weakening of the labour market consistent with pricing being in favour of a cut in August (around a 75% implied probability pre-data). However, at the same time, the series may not satisfy Bailey's labour market conditions for larger rate cuts.


• Opened at 91.33, 20 ticks below yesterday’s close, and then slipped further to a 91.14 trough. Marking an incremental new WTD low and as discussed yesterday bringing attention on the figure and then 90.11 from May.


• As alluded to above, BoE pricing has not changed substantially since the release with markets still very much in favour of an August cut with around 19bps of easing still implied. Note, Pantheon Macro has updated their call and now look for a “one-and-done cut in August” (prev. skip Aug., ease in Nov.), as an insurance cut. However, they outline that today’s data and CPI earlier in the week implies the decision is closer than markets are pricing.


• No move seen on the DMO’s 2030 sale, results broadly in-line with the last outing.

17 Jul 2025 - 10:20- ForexData- Source: Newsquawk