EUROPEAN FIXED UPDATE: Contained two-way trade into Trump's tariff letters

USTs: +1 tick, 111-08

• A firmer start to the day, USTs initially posted gains of around five ticks. However this has waned gradually in the European morning and the benchmark is just about in the green in a 111-06+ to 111-12+ band.


• If further pressure emerges, support resides at 110-31 from last Thursday and then 110-25 and 110-10+ from the two weeks prior.


• Specifics in European hours light. Late-Friday/weekend newsflow was extensive, main updates on the trade front as Trump announced letters to partners will be sent out from today outlining their tariff level; he guided us to around 15 letters today, with more over the next few days.


• The sending of letters is a point of risk, with markets now keenly waiting to see who is in the first batch and if the tariff level is favourable or not. On a more optimistic note, the Treasury Secretary said if a deal is not reached then April 2nd tariffs are effective from August 1st; seemingly an extension of the July 9th deadline, however, this is unclear and remarks from Trump on the timing added little of substance.


• Tariffs aside, the US docket is sparse today with no data or speakers due. However, we do expect President Trump to meet Israeli PM Netanyahu at around 23:30BST/18:30ET.

Bunds: -15 ticks, 130.36

• Contained into the European morning, pushed lower by just under 10 ticks by a strong set of German Industrial data for May. A series that was driven by automotive, energy and pharmaceutical growth. However, construction was a headwind. A series which points to a potential pickup for the economy, a point highlighted by ECB’s Nagel (Bundesbank President) who separately said “there are grounds for cautious optimism as we look to the future”.


• However, this proved short-lived with Bunds then picking up to a 130.62 peak around 30 minutes later before falling once again and moving back into the red into the European cash equity open. Since, the benchmark has continued to drift and hit a 130.19 low just ahead of 130.18, 130.05 and 130.00 troughs from the last few weeks.


• Sentix came in firmer than expected, surpassing the forecast range. No significant move seen, Retail Sales due imminently. No move on the data, though Bunds have managed to pick themselves off the mentioned low by around 20 ticks in slightly choppy trade this morning.


• ECB speak today also included Centeno telling Econostream that he does not know if 25bps will do the trick with risks remaining to the downside and the current stance to remain restrictive if output does not recover, adding that a cut or pause is conceivable in July.


• Data/speakers aside, the narrative remains firmly focussed on trade (outlined in USTs). For the bloc specifically, diplomats on Friday said negotiators failed to come to a breakthrough and they would be talking throughout the weekend, as part of that the EU sought a tariff pause - given the August 1st deadline (see USTs), a small period of reprieve appears to have been granted.

Gilts: +10 ticks, 92.48

• Firmer, but only modestly so. Opened essentially unchanged vs Friday’s close at 92.37 vs 92.38. Thereafter, slipped a few ticks to a 92.33 base in-line with the move seen in EGBs at the time.


• Newsflow for the UK has been light in-hours, as the UK already has a tariff deal agreed and so presumably will not be receiving a letter from Trump. That aside, the domestic fiscal situation remains at the fore-front of newsflow as CityAM reports the Chancellor has cautioned ministers that the welfare U-turn means taxes will need to increase.


• Despite the potential manifesto pledge breach (Labour committed to not taxing the working class), Gilts are the slight outperformer, posting gains of 25 ticks at best with the honesty from the Chancellor seemingly welcome by markets. However, it is worth caveating that Gilts remain shy of Friday’s 92.79 best and markedly shy of Wednesday’s pre-PMQs 93.41 peak.


• Note, the BoE is hosting a short-term Gilt operation at 14:45BST.

07 Jul 2025 - 09:55- ForexEU Research- Source: Newsquawk