EUROPEAN FIXED UPDATE: Bonds bid and yields slump on MOF sources, Gilts outperform on this & two domestic reports

JGBs: -10 ticks, 139.39

• Initially weighed on by BoJ’s Ueda reiterating hiking plans. Action which, pushed JGBs to a 139.08 low overnight. Thereafter, the benchmark rallied on supply related sources to a 139.49 peak.


• Bid on reports that Japan’s MOF is to consider tweaking its bond issuance composition, via Reuters citing sources. A tweak that could include the trimming of super long-term debt. As such, yields are lower across the Japanese curve but particularly so at the long end, with the 30yr lower by over 15bps and the 40yr by over 20bps at extremes.


• Sources via Bloomberg/Nikkei report that the MOF intends to hold a meeting with primary dealers on June 20th to discuss this, and requests for information on adequate issuance sizes have been sent ahead of the meeting.


• The reported action taken by the MOF follows on from Japanese yields hitting record highs in recent weeks, particularly after the soft 20yr sale.


• For reference, the next long-dated auction is on May 28th where JGB 500bln of 40yr JGBs will be sold, some concern ahead of this as the auction will be sold Dutch-style, so if demand is weak the entire amount will go at the lowest accepted price, weighing on the benchmark and spiking the 40yr yield.


• As it stands, JGBs are back just into the red, coming off the above high as the risk tone improves and focus turns to the day’s schedule and tomorrow’s 40yr JGB outing.

USTs: +8 ticks, 110-10

• The above has carried into US trade. Lifting USTs by 10 ticks at best to a 110-13 high. Yields lower across the US curve but, unsurprisingly, given the long-dated focus to the MOF reporting that area is leading the move down, sparking bull-flattening.


• Fed’s Kashkari stuck to the data-dependent approach that has characterised his commentary in recent days and weeks.


• Generally, specifics for the US light as the region returns from Monday’s holiday, JGB moves aside the primary focus is on EU-US trade (see Bunds). Ahead, US Durable Goods and Consumer Confidence due before a 2yr Note auction.

Bunds: +45 ticks, 131.18

• Already subject to an upward bias given the JGB action, a bias which was extended on by a cooler-than-expected set of French preliminary inflation, a series that was sufficient to lift Bunds above the 131.00 mark.


• Further support stemmed from ECB’s Villeroy, who outlined that interest rate normalisation within the bloc is unlikely to have concluded. This added to the above bias and lifted Bunds to a 131.22 peak, where the benchmark remains.


• The docket ahead features supply from Italy. However, the focus point is firmly on EU-US trade talks after Trump provided the bloc with an extension over the weekend and Bloomberg reports this morning that technical talks will occur in tandem with ones on critical sectors, in a bid to avoid tariffs being implemented.

Gilts: +61 ticks, 91.60

• Bolstered in sympathy with JGBs, and with two UK-specific factors also influencing.


• Firstly, the FT reports that the UK will be shifting to shorter-term borrowing in order to lower its interest bill amid elevated longer-dated yields which are pressuring the fiscal situation. Reporting chimes with language from and action taken by the DMO in recent weeks/months.


• Secondly, The Telegraph citing NIESR reports that Chancellor Reeves is “being forced towards” a tax raid of as much as GBP 30bln, due to increasing borrowing costs and benefit payments. While lifting taxes may be politically unwelcome in some corners, Gilts welcome the revenue generation.


• Altogether, these factors caused Gilts to gap higher by 47 ticks (gapping from Friday’s close, owing to Monday’s Bank Holiday) and then extend another 43 to a 91.89 peak. Stopping just shy of resistance at 91.91 from May 20th.

27 May 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk