EUROPEAN FIXED UPDATE: Debt dips with Central Bank speak taking centre stage

Analysis details (10:37)

• Core benchmarks have come under modest pressure throughout the European morning with specific catalysts light and well within Friday’s boundaries thus far. To recap, Friday saw a post-payrolls bid for the complex which took UST Sep’23 to a 111.10 high though shy of that week’s 110.20 peak from Monday before the Treasury estimates were released. This week, action is focused on Central Bank speak, US supply and CPI.


• Continuing with USTs, the benchmark is softer this morning with yields firmer across the curve but much more so at the short-end at the time of writing - action that was perhaps spurred by Fed’s Bowman who stuck to her usual hawkish stance by remarking that more US rate hikes will likely be needed. More recently, we have seen the release of a lengthy interview from influential Williams who kept a firm emphasis on data dependence and on the September confab said he does not “have any preference of what we need to do at a future meeting”. Adding that policy is restrictive and the debate is now about do we need another hike or not and that we are now “pretty close” to what the peak rate would be. For the session ahead, Fed’s Bowman is scheduled again alongside the generally neutral Harker and more dovish Bostic before the Manheim vehicle index.


• Back to Europe, Bunds are at the low end of 131.85-132.39 parameters, a range that eclipsed Friday’s peak by a handful of ticks but still has some way to go before last week’s/Friday’s 131.12 trough. Again, specific catalysts have been relatively light aside from the morning’s German IP another soft measure for the bloc's largest economy and increases the risk of a downward revision to German Q2 GDP.


• Finally, Gilts are directionally in-fitting with the above but with magnitudes slightly more pronounced as the benchmark posts downside of circa. 45 ticks. Though, as above, there is still some way to go before we approach last week’s 93.70 low print. For the UK specifically, BoE’s Chief Economist Pill is scheduled once again after speaking post-BoE and placing significant emphasis on the persistence of inflation while being understandably non-committal on the path of rates. Albeit, when questioned on the risk of overtightening Pill acknowledged that they are “trying to balance the risk of doing too little but it is possible we do too much.”

07 Aug 2023 - 10:37- Fixed IncomeResearch Sheet- Source: Newsquawk