EUROPEAN FIXED UPDATE: Contained trade into the FOMC

USTs: -2 ticks, 113-11+

• Awaiting the Fed. A 25bps cut is all but certain. A decision that will likely be subject to dissent with Miran seemingly set to vote for 50bps again, after remarking since the September Fed that 25bps is too slow a pace of easing. Commentary from Powell will focus on December, -46bps implied by end-2025, and the balance sheet (see below).


• QT forms the other part of the decision. Desks expect an announcement from the Fed on the balance sheet as Chair Powell suggested that the level of reserves was likely to hit an ample level in the coming months vs the current “abundant” level, a point the Fed has previously suggested it would want to hold reserves at. As it stands, the Fed allows USD 5bln/month of treasury holdings to mature and roll off alongside a maximum USD 35bln/month of MBS; options include reinvesting one or both components instead of allowing holdings to continue to runoff, though continuing the MBS exit is regarded as likely.


• ING outlines that one option for the Fed regarding MBS would be keeping the discussed USD 35bln/month cap but then offsetting the actual roll-off, closer to USD 15bln, by purchasing T-bills in order to maintain the overall reserve level.


• Note, Vice Chair Bowman has suggested she prefers the smallest balance sheet possible, a remark that could pave the way for dissent on the balance sheet.


• As always, the full Newsquawk preview is available.


• Into this, USTs are marginally pressured in a thin 113-11+ to 113-16+ band, which is entirely within Tuesday’s 113-09+ to 113-18+ parameters. A move above that brings last week’s 113-20 to 113-29 cluster of highs into view, while a drop looks to support at 113-04 before the figure.


• Elsewhere, the BoC is due and expected to cut by 25bps to 2.25%, before earnings take centre stage this evening post-Fed and we then look to Thursday’s Trump-Xi meeting. On the latter point, overnight developments were constructive with China purchasing US soybeans and Chinese state media confirming the meeting will occur. Updates that have perhaps factored into the very slight bearish bias in the debt space, alongside further trade-positive comments from POTUS this morning.

Bunds: -10 ticks, 129.47

• Contained with a very marginal bearish bias, as is the case for USTs. Specifics light so far. Supply once again in focus from Germany, this time Bunds are offered after another dismal Bobl tap earlier in the week.


• Bunds currently at a 129.47 low, with downside of 10 ticks at most. Holding just above Tuesday’s 129.44 base and the WTD low from Monday at 129.26. If the move continues, we then look to 129.13 from the mid-October week before the figure itself. On the flip side, a pickup above the current 129.62 peak brings 129.64 and 129.73 from Monday and Tuesday into view before a cluster between 130.02 and 130.38 from last week.


• Moving to France, another chance for a compromise to be found between the Lecornu government and Socialist Party. As Politico reports that the full debate on a French wealth tax (i.e. the Zucman tax) will not happen on Wednesday or Thursday, but is likely on Friday. Currently, the OAT-Bund 10yr yield spread is holding just shy of the 80bps mark.

Gilts: U/C, 93.75

• Echoes of the above. Specific newsflow for the UK light and the docket thin aside from the first outing of a 4.125% 2033 Gilt, results due shortly after publication. An auction that should pass without issue.


• The morning’s data showed an increase in individual mortgage borrowing to the highest since March 2025 with mortgage approvals also increasing. Activity driven by the effective interest rate on new mortgages dropping to 4.19%, its lowest since January 2023 when the rate was 3.88%.


• Gilts at the lower-end of a 93.71-89 band, within Tuesday’s 93.62 to 93.96 confines.

29 Oct 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk