EUROPEAN FIXED UPDATE: Bunds & Gilts hit by PMIs, OATs look to Moody's, USTs await CPI

USTs: -4 ticks, 113-11

• Contained overnight despite a handful of trade updates, with USTs very much waiting for the upcoming US September CPI report. A series that is being released, despite the shutdown, to facilitate social security adjustments.


• Consensus looks for headline CPI to rise +0.4% M/M (prev. 0.4%), with the annual rate seen rising to 3.1% Y/Y (prev. 2.9%). The core rate is expected to rise by +0.3% M/M (prev. 0.3%), with the annual rate of core inflation seen unchanged at 3.1%


• The recent FOMC meeting minutes revealed that officials are split over monetary policy due to differing views on inflation and the labour market; most see employment weakening, justifying further rate cuts, but some have noted inflation risks. Still, officials generally see the inflation impact diminishing and expect a return to the 2% target.


• Ahead of next week’s FOMC where a cut is essentially fully priced by markets. By end-2026, -46.8bps of additional easing is currently implied. As a reminder, we are in the blackout period so we will not receive insight from the FOMC itself on the data pre-Fed.


• Elsewhere, we await updates on the trade front. Firstly, a potential investigation into China’s adherence with Section 301 terms from Trump’s first term. Secondly, further details on Thursday’s upcoming Trump-Xi call. Finally, relations between the US and Canada have deteriorated significantly with Trump stopping discussions following the release of a Canadian tariff video.

Bunds: -46 ticks, 129.52

• Contained early doors, holding just under the 130.00 mark.


• Thereafter, the softer-than-expected French PMIs pushed the benchmark to a 130.07 peak and also lifted OATs to a 123.06 high. However, this peak proved short-lived as the subsequent German measures came in firmer than expected across the board and eclipsed the forecast range.


• The German metrics sent Bunds down by c. 30 ticks at the time, a move that has since extended to a 129.50 base following the EZ figure. Overall, the series and internal commentary corroborate the view that the ECB is on hold until at least the December forecast meeting.


• Ahead, direction for EGBs will be dictated by how US CPI and the subsequent Flash PMIs print.

OATs: -55 ticks, 122.46

• After-hours Moody’s will be reviewing France. Currently, Moody’s has France at Aa3 and is the last of the big-three to have a double-A rating on France; after S&P cut in an unscheduled move last Friday and Fitch earlier on.


• Speaking to Politico, Moody’s Sheth, speaking on French fiscal consolidation, outlined that they “anticipate that meeting that goal is going to be challenging”, and that the process of narrowing the deficit is subject to challenges which are “rising given the political environment”.


• One point of focus in the review will be pension reform. As a reminder, PM Lecornu has pledged to pause reform until the next Presidential cycle, as part of a concession to get Socialist Party (PS) support. However, last year Moody’s (when they cut France to Aa3) outlined that suspending pension reform had the potential to negatively impact the sovereign rating.


• Elsewhere, but continuing with the PS, leader Faure spoke to BFM this morning and outlined that they are yet to see any signs of compromise from the government over an ultra-rich tax measure, and if there is no change by Monday then “it’s all over”; implying that they would submit a no-confidence motion, unless progress is made on taxing the wealthiest in society.


• Into the review, OATs have been moved by the morning’s PMIs (as outlined in Bunds) and are underperforming the German benchmark modestly. As such, the OAT-Bund 10yr yield spread has lifted to 82.4bps; YTD high is 88.2bps, 2024 high is 90bps.

Gilts: -13 ticks, 93.41

• A firmer start to the day, but only by a few ticks. Upside that then extended to a 93.79 peak, strength that appeared to be a function of the deterioration in the risk tone at the time and the bullish move seen in EGBs (as outlined above) after the French PMIs.


• Thereafter, Gilts followed EGBs lower following the German and EZ figures before coming under more pressure and slipping to a 93.41 low in the wake of better-than-expected Flash UK PMIs. A series that confirms the relatively ok performance of the economy and corroborates the recent cooler-than-expected CPI report; furthermore, it chimes with the view of uncertainty ahead of the November Budget.


• Overall, it confirms the view that the BoE will likely remain on hold in November, as it waits for further data and the November budget, before potentially cutting in December.


• On the point of data, this morning’s surprisingly strong retail sales figures spurred a slight hawkish reaction in November pricing, trimming the odds of a cut to c. 21% (pre-release c. 35%) but had no impact on December pricing; in sum, chiming with the above view on the BoE’s near-term trajectory.


• Elsewhere, we remain attentive to reports in UK press that Chancellor Reeves is said to be considering breaching a manifesto pledge and raising income taxes. However, a UK minister has since pushed back on this.

24 Oct 2025 - 10:20- ForexData- Source: Newsquawk