EUROPEAN FIXED UPDATE: Bonds bid as the risk tone deteriorates ahead of a packed weekly docket

USTs: +4.5 ticks, 111-31

• UST futures are trading higher by just under 5 ticks in very quiet newsflow and after a lacklustre session overnight, given JGB cash trade was shut as Japan enjoyed its Mountain Day holiday.


• Price action this morning has only really been upwards, alongside global peers. Nothing quite behind the upside, but potentially amid a deterioration in the risk tone (stocks moving lower & JPY bid). Upside in fixed income could be explained by: a) latest dovish commentary from Fed’s Bowman, b) Russia-US meeting, c) trade updates (and lack of US-China updates) - all discussed below.


• Beginning with Fed commentary, Fed’s Bowman said that the latest job market data reinforces her forecast for three rate cuts this year, sticking with her dovish tone. On the geopolitical front, US President Trump said he will meet with Russian President Putin on August 15th in Alaska, while the White House is considering inviting Ukrainian President Zelensky. It is pertinent to highlight that the WSJ reported on Friday that Putin will demand that Ukraine cede several parts of Ukraine to halt the war. Even more damning is that if Ukraine is not part of the talks on Friday, the agreement may only be preliminary at best, and will be subject to Ukrainian approval. On the trade front, US Treasury Secretary Bessent expects trade issues to be finished by October, according to Nikkei. As for the chips sector, China wants the US to relax export controls on chips as part of a trade deal. In terms of the US-China, traders still await updates on this key risk event, whereby the deadline is expected to expire on August 12th.


• Currently trading towards the upper end of a 111-25+ to 112-00 range; the peak for the day is just shy of last Friday’s best at 112-02 – further upside could see the potential test of the high from a day earlier at 112-04+.


• Docket for the remainder of the day is void of anything important. Focus will now turn to US CPI (Tuesday); US July CPI is expected to rise by +0.2% M/M at the headline level (prev. +0.3%), with the annual rate seen rising to 2.8% Y/Y from 2.7%. Danske Bank writes that a softer print will reinforce expectations for a September rate cut and extend a rally, particularly in the front end.

Bunds: +8 ticks, 129.81

• Bunds are currently firmer but have waned off best levels in recent trade, in a 129.67 to 130.00 range. As above, nothing behind the upside today, but in line with the risk tone. For Europe specifically, the move could also be explained by less demand for defence-related spending, should a Russia-Ukraine deal be struck on Friday.


• Danske Bank wrote in its morning note that the ECB speak/data docket is very light this week and as such, Bunds will likely “take directional cues from US rates, leaving the curve vulnerable to shifts in Fed pricing following the CPI release”.


• From a technical perspective, Bunds breached its 50% fib (of the last trading session) at 129.94. A confident breach above the 130.00 mark may see a potential retest of last Friday’s high at 130.26. From a yield perspective, there is some clear bull flattening today (vs bear-steepening on Friday) – a move which has been fairly common over the past two months.

Gilts: +31 ticks, 92.27

• Gilts are also firmer, and are outperforming vs peers. Nothing quite behind the marginal outperformance, particularly in the context of slow UK-specific newsflow.


• As mentioned earlier, newsflow is very light today aside from a KPMG/REC survey, which showed that UK employers have slowed hiring over labour and tax cost fears; it also highlighted that recruitment activity remains close to a two-year low. Attention will be on UK Jobs data (Tuesday) and then GDP (Thursday); given how mixed the views at the BoE were at the last meeting, a hawkish data set could reinforce keeping rates higher for longer for the four members who voted to keep rates steady at the last meeting.


• UK paper is currently trading towards the upper end of a 92.00 to 92.37 range; this has breached last Friday’s high at 92.31, with the next level to the upside at 92.66 (8th Aug high).

11 Aug 2025 - 10:15- ForexData- Source: Newsquawk