EUROPEAN FIXED UPDATE: Contained/firmer start has given way to pressure as the risk tone recovers

USTs: -2 ticks, 111-30

• A relatively contained start to the session after a blockbuster Monday. Thus far, USTs are in relatively narrow 111-21+ to 112-08 parameters and entirely within, but at the lower-end of, Monday’s standout 111-15+ to 114-10 band.


• As it stands, markets are essentially just waiting for the next major update with the risk tone taking a slight breather from Monday’s marked pressure. Focus primarily on how Trump responds to China, after he gave them a deadline of today to remove their 34% tariff and as the language from China overnight signalled that they are not backing down, for now at least.


• For yields, they are lower across the curve and unwinding some of the significant steepening that occurred at points on Monday, where 2s30s was over 15bps steeper in the European morning. The short-end finds itself slightly softer, with yields in that area teetering on a move into positive territory, action which is potentially being influenced by upcoming 3yr supply.


• The docket for today is particularly sparse stateside for the next few hours with nothing scheduled of note until the mentioned supply, thereafter the slate picks up and includes a White House briefing, Fed’s Daly (Q&A, no text) and President Trump signing an energy-related executive order.

Bunds: -40 ticks, 129.95

• Began firmer, at the top-end of a 129.81 to 130.58 band which is entirely within but at the lower end of Monday’s chunky 129.11 to 132.03 range. As the morning progressed and the European tone remained relatively robust the benchmark slipped into the red and is probing 130.00 to the downside.


• Specifics this morning are comparably light with markets waiting for the next major update. From the EU, the Commission has reportedly proposed a 25% tariff on US goods to take effect from May 16th, according to Reuters. Given the response from Trump to China announcing retaliation, it is safe to assume this will draw punchy rhetoric and/or action from POTUS at some point.


• Most recently, Commission President von der Leyen spoke with Chinese PM Li Qiang and called for a negotiated resolution and stressed the need to avoid further escalation; it remains to be seen how the reported 25% tariff response factors into that.


• Trade/tariffs aside, the near-term schedule has potential remarks from ECB’s de Guindos (no text) before the EU syndicating 2028 and 2052 bonds, around EUR 10bln is expected with books so far in excess of EUR 89bln. Thereafter, Germany taps a new Green line for EUR 3bln. Looming supply may have factored into Bunds pulling back and underperforming peers.


• For the ECB, markets currently imply 75bps of easing by end-2025 to a 1.75% terminal. On this, BofA is maintaining its call for a 1.50% terminal but adds that the risk of further cuts to 1.0% has increased due to the “demand shock” from tariffs.

Gilts: +3 ticks, 92.18

• Outperforming and towards the top-end of a 91.81 to 92.63 band. Strength is a function of the relative underperformance seen in Gilts on Monday rather than any specific factor underpinning it and with no real concession emerging into strong DMO supply that seemingly sparked a c. 15 tick bounce in Gilts.


• While firmer, today’s 92.63 high point is just under 200 ticks shy of Monday’s 94.50 high and leaves the benchmark lower by over 150 ticks WTD.


• As above, the price action is largely a breather from the marked moves seen on Monday as we await a substantial update on tariffs/trade. 


• Note, UK Parliament goes on its Easter recess tonight which means no PMQs tomorrow, instead Chancellor Reeves faces Treasury Questions in the House at around 11:30BST. Updates around the UK-US Economic Deal are few and far between, we look to Reeves and other briefings throughout the day for any fresh insight.

08 Apr 2025 - 10:20- ForexEU Research- Source: Newsquawk