EUROPEAN FIXED UPDATE: Bid, continuing the gains from Monday. Digesting and awaiting numerous central bank speak

USTs: +5 ticks, 112-09

• A firmer start to the day for benchmarks across the board. APAC trade featured a modest bullish bias, one that has been fanned higher by a deterioration in the European risk tone and a subsequent modest FTQ, with strength in FX havens and XAU as well.


• USTs continue to bull-flatten this morning, extending the bias that was seen on Monday amid quarter-end, soft Chicago PMI data and Bessent dialling back expectations he will term out the debt.


• Newsflow since has been light, a lot of attention on Trump’s criticism of Powell and while it was pronounced and featured POTUS explicitly calling for 1% interest rates, the criticism of the Fed Chair by Trump is nothing new.


• Ahead, USTs look forward to Final Manufacturing PMI which serves as a preview to the ISM figure, headline exp. 48.8 (prev. 48.5), alongside that JOLTS is scheduled and forecast at 7.3mln (prev 7.391mln).


• Before the data points though, Chair Powell is due on a panel with the heads of the BoE, BoJ and ECB. Chair Powell will be scrutinised for his view on Trump’s call for 1% interest rates, the most recent PCE data, the upcoming NFP report and remarks from a handful of officials around July; though, of course, it remains to be seen if Powell will break from his data-dependent and wait-and-see approach after he gave a very slight dovish nod in recent House/Senate testimony.


• For reference, USTs are off highs in a 112-00 to 112-12 band. Surpassing the 112-05 June high and now eyeing the 112-23 May peak.

Bunds: +49 ticks, 130.65

• Bid, modestly outperforming USTs into Flash HICP. June’s inflation printed in-line with analyst forecasts for the three main figures and while the Services Y/Y ticked up to 2.3% (prev. 2.2%), it is worth reminding the print has trimmed significantly from the 4% level seen in April.


• No reaction to the release in Bunds or market pricing; the latter continues to near-enough entirely price a 25bps cut in December. Leaving Bunds around 10 ticks off best in a 130.18 to 130.73 band. If the upside resumes, resistance eyed at 130.80 from last Thursday before a handful of levels earlier that week between 131.12 to 131.20.


• Prior to this, the morning was heavy with ECB speak at the Sintra gathering. Overall, nothing that fundamentally shifts the narrative but interestingly much of the commentary focussed on recent EUR strength (see FX for details). Alongside this, Bunds bid given the general risk tone, with the bulk of the session’s gains occurring around half an hour after the cash equity open.


• Data has also been heavy, with Final Manufacturing PMIs dropping. No pronounced move to the metrics, subject to modest and generally upward revisions.


• Ahead, countless more scheduled and impromptu ECB officials will dominate the European session. Of those, the mentioned panel with Lagarde takes centre stage; Lagarde herself will be sought for views on the EUR and whether ECB pricing for one more 2025 cut, and remarks from the likes of Villeroy in recent weeks saying it is about right, chimes with her view.


• Elsewhere, today is the European Commission's self-imposed deadline to submit its budget under the Multiannual Financial Framework, however, Politico reports that the deadline will be missed given the usual points of contention i.e. north-south divide. As such, the proposal is now expected on July 16th.

Gilts: +53 ticks, 93.56

• Outperforming. Upside comes as a continuation but marked extension to the modest gains seen on Monday. Gapped higher by 34 ticks and has since extended another 30 to a 93.67 peak.


• Action that is by and large in-fitting with that outlined in USTs and EGBs, with the benchmark benefitting from the FTQ.


• UK Final Manufacturing PMI was unrevised but internal commentary on inflation welcome, and another bullish catalyst, as S&P wrote "Inflation of both input costs and selling prices meanwhile nudged lower to hint at a softening inflation trend.".


• Remarks this morning from BoE’s Bailey (also due at the discussed panel with Powell & Lagarde), who maintained that the path of rates is gradually downward, the labour market is softening and they need to be attentive to the consequences of declining inflation.


• Bailey also gave extensive remarks on yields, outlining that they have not seen a steepening of the long-term curve and does not believe QT is causing a steepening. Bailey is also due at the mentioned 14:30BST panel.


• No reaction to the DMO selling GBP 2bln of its 2053 Green Gilt, outing received a strong reception as is typically the case.


• That aside, today sees the government present its Welfare Reform Bill to the Commons for its second read. Expected to pass, after the significant u-turn at the tail-end of last week; however, it may still be subject to significant rebellion of as many as 50 Labour MPs. Debate opens around 12:30BST but the vote may not occur until the early evening.

01 Jul 2025 - 10:20- Fixed IncomeData- Source: Newsquawk