EUROPEAN FIXED UPDATE: Bunds continue to slump on the latest fiscal reports pre-ECB, USTs await data

Bunds: -78 ticks, 127.40

• Attention is on reports that Germany is pushing for significant fiscal reform at the EU level. Specifically, Politico reports that Germany is expected to propose an idea of loosening the Stability and Growth Pact (the pact which keeps debt to 60% of GDP and deficits to 3%). Updates on this could come from today’s EU leaders meeting and/or the Finance Minister gathering on Monday.


• In terms of where yields could go, on the fiscal expansion in Germany alone this could take the 10yr yield into a 3.00-3.75% range writes Goldman Sachs; a move which could extend to the 3.00-4.00% band if it spurs more expansive measures at the EU level.


• As such, it is yet another bearish session for EGBs with Bunds down by over 100 ticks at worst to a 126.64 low vs a 131.71 opening level for the week. Given this, yields are bid across the curve which itself is steepening and the 10yr has been up to 2.93% at best.


• Further pressure for benchmarks stemming from Europe’s constructive equity open, as the region welcomes the slight reprieve given to Canada and Mexico by the US on tariffs; however, the risk tone itself has since come under some modest pressure though this has not had much influence on fixed yet.


• On Germany's fiscal updates, Reuters sources report that the Bundestag will begin discussing it next week before a vote on March 18th; as a reminder, the new Bundestag sits on March 23rd, at which point there will be a blocking minority against constitutional reform.


• The session ahead is focussed on the ECB and while a cut remains priced in for today’s gathering there are still numerous points of uncertainty heading in. Namely, whether policy is still labelled as being restrictive or not and what the ECB’s trajectory is for rates ahead; deliberations which have likely been complicated by the significant EGB reaction to Germany’s fiscal plans.

USTs: -8 ticks, 110-20

• Pulled lower by the German moves and the constructive start to the European equity session as Trump delayed auto tariffs on Canada and Mexico.


• Action which has taken USTs to a 110-12+ base thus far, with the direction once again in-fitting with EGBs but magnitudes much more contained as the region is less affected by Germany’s and the broader bloc’s potential fiscal reform.


• The session ahead is firstly focussed on the ECB (see below) and then on the regions data points with weekly jobs (does not match the BLS survey period), Q4 labour revisions and wholesale inventory/trade data; following the latter points, the Atlanta Fed will update its GDPnow model for Q1 which was last tracking at -2.8% on March 3rd.

Gilts: -27 ticks, 91.43

• In the red, following the lead from Bunds but once again to a slightly lesser extent. Action which has taken Gilts to a 90.71 trough.


• Specifics for the region light around the open with no move to the latest Construction PMI though this came in significantly softer than forecast and sent the measure much further into contractionary territory.


• The latest BoE DMP spurred no move though expectations for year ahead inflation lifted a touch while the three-year and wage figures remained steady.

06 Mar 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk