EUROPEAN FIXED UPDATE: Bonds pressured after PMIs, lower UK borrowing fails to lift spirits ahead of the Autumn Budget

USTs: -2.5 ticks, 111-25

• USTs began the European session around the unchanged mark, with price action fairly tentative in a continuation of the lacklustre trade seen overnight. As the European morning kicked off, trade has largely been dictated by Bunds, which have had a number of regional PMIs to digest (more in Bund section below).


• US paper currently trades lower by a handful of ticks, in a 111-24 to 111-29 range, contained within the prior day's confines.


• From a US perspective, FOMC Minutes held a bit of a hawkish skew and this was reflected across financial markets. USTs fell from 111-31 to 111-28; the Minutes highlighted that "a majority of participants judged the upside risk to inflation as the greater of these two risks" - but of course, these views do not account for the latest jobs/inflation data. And on the latest Fed developments, Governor Cook stated she will not be bullied into resigning after the POTUS called for her to leave, accusing her of mortgage fraud allegations.


• Looking ahead, weekly initial jobless claims are seen at 224k in the August 16th week (coincides with the BLS survey window for the US August jobs data) from 225k, while continuing claims are seen up a touch to 1.96mln from 1.953mln. The Philly Fed business survey is seen paring in August. S&P Global's PMI data is expected to show US services sector activity easing to 54.2 from 55.7, while the manufacturing gauge is expected to remain sub-50 (seen at 49.5 from 49.8). Fed speak today via Bostic and Schmid.

Bunds: -10 ticks, 129.36

• Bund Sept’25 started the European session around the unchanged mark and slipped on both the French and then German PMI metrics, which overall highlighted the ongoing strength in the Manufacturing sector, whilst Services was a little more subdued.


• In more detail, France saw both Manufacturing and Services top expectations; the bulk of the downside in Bunds occurred on this figure, slipping from 129.46 to 129.32 in an immediate reaction, before taking another leg lower to around 129.25. Thereafter, Germany's numbers (strong Manufacturing but softer Services) led to some further pressure in German paper – moving to a fresh trough of 129.15 – a move which has since pared back towards pre-French data at 129.38.


• The EZ wide figure confirmed the strong Manufacturing / slightly softer Services picture, with the former surprisingly climbing into expansionary territory. In terms of the commentary, it highlighted that “U.S. trade policy is leaving its mark. Foreign orders in the eurozone manufacturing sector have declined for the second month in a row”.


• Aside from EU Consumer Confidence, nothing really left on the docket from a European perspective; price action will now likely be dictated by the US-side of things.


• No real move to the French auction, which was overall fairly well received - not entirely surprising given the short-dated nature of the outing.

Gilts: -15 ticks, 90.98

• Gilts traded subdued throughout the European morning, taking leads from the hotter-than-expected PMI metrics in Europe. Into the region’s own figures, UK paper traded lower by around 15 ticks.


• Thereafter, on the region’s own PMI metrics, Gilts fell from 90.99 to 90.91 before trimming half of the move; currently trading in a 90.82 to 91.22 range. Unlike in Europe, the upside in Composite was thanks to strength in the Services sector, whilst Manufacturing was subdued. It is worth highlighting that the accompanying release was fairly downbeat; “Payroll numbers also continue to be cut at an aggressive rate”; “the demand environment remains both uneven and fragile”.


• Earlier the ONS released the latest public sector net borrowing (ex-banks), which fell to GBP 1.1bln (prev. GBP 2.3bln M/M, exp. 2bln). This may help to alleviate some of the fiscal-related pressure ahead of Chancellor Reeves’ Autumn budget, but Pantheon Macro writes that she will still need to raise taxes in October. Whereas, analysts at CapEco suggest the release “does little to brighten the gloomy outlook ahead of the budget”. On that, UK Chancellor Reeves is said to be mulling cutting the tax-free pension lump sum in a move that would be expected to raise more than GBP 2bln a year, according to Telegraph sources.

21 Aug 2025 - 10:20- Fixed IncomeData- Source: Newsquawk