EUROPEAN FIXED UPDATE: Digesting the Fed and looking to the BoE; no move to auctions

USTs: +6 ticks, 113-10

• A firmer start to the day for USTs. Following the two-way moves seen on the Fed with the 25bps cut and statement sparking a dovish move, however, this then reversed into and during the press conference from Chair Powell.


• As it stands, USTs are higher by a handful of ticks towards the upper-end of a 113-00 to 113-12 band.


• From the Fed, a few points of note worth briefly discussing. Firstly, the vote split saw just Miran dissent and push for a 50bps move, with the omission of Bowman and/or Waller from the 50bps camp of note, and potentially factoring into the initial reversal of the dovish move seen before Chair Powell began.


• Thereafter, Powell was much more hawkish than the statement suggested. Powell placed less emphasis on the dovish statement/SEP, described the cut as a risk management decision in response to “meaningful” downside risks to the labour market. Pertinently, making clear that he does not feel the need to move quickly on rates, emphasising a meeting-by-meeting and data-dependent approach with the Fed focussed on data, rather than market pricing.


• In terms of pricing, this has ultimately experienced a modest dovish shift with 44bps of cuts now implied by end-2025 vs the c. 41bps implied pre-Fed (adjusted for September’s move).


• This morning, the curve is marginally flatter. On Wednesday evening the curve was particularly choppy and ultimately somewhat mixed with the 10yr seemingly the dividing line as it underperformed its long-end peers.


• Ahead, we now await the remarks from Miran on his dissent. Insight into how the non-voting official(s) were who wanted to leave policy unchanged; reminder, Powell said support for a cut was broad but not unanimous. Amidst this, POTUS will of course, be watched for his view.


• Today, attention turns back to the data with weekly claims, Thursday's highlight. Elsewhere, POTUS and UK PM Starmer will be holding a joint presser at 14:30BST.

Bunds: -10 ticks, 128.81

• Moved in tandem with USTs on Wednesday evening.


• This morning, the benchmark has been a little choppy. Initially held near the unchanged mark before picking up a little bit in the European pre-market, seemingly as European futures waned ever so slightly from best levels. However, this strength didn’t amount to much with Bunds only firmer by 10 ticks at best.


• Since, the benchmark has pulled back into the red and resides towards the lower end of a 128.75 to 129.02 band. No move in Bunds to the slightly softer than usual, but still robust enough, Spanish tap.


• Thereafter, France hit. There was larger than normal attention on this French outing, given the downgrade by Fitch to A+ from AA- last week. Overall, the results were strong and will be taken as a sign that the French debt market continues to function in an orderly fashion despite the downgrade and continued political uncertainty; corroborating the orderly performance of the OAT-Bund spread in recent days.


• Ahead, the docket is very much focused on speakers from an ECB perspective with commentary this morning coming from VP de Guindos who continues to place focus on the EUR. Not adding too much though vs his recent language on the subject. Ahead, we have the typically more hawkish Nagel due, though we are not guided to the topic of his speech.

Gilts: -5 ticks, 91.55

• The main event today is the BoE. Into it, Gilts are a touch softer moving in tandem with Bunds, at the low end of a 91.44-67 band.


• The decision is, all but certain, to be unchanged at 4.00%. On this, the vote split may draw some attention as we are likely to see dovish dissent from Dhingra (in-fitting with her known bias) and Taylor (voted for 50bps cut last time, changed to 25bps in order to attain a consensus).


• From the statement, we look for insight into the path of policy in the near term with markets currently not pricing a cut until April 2026. Given this and the broadly in-line CPI this week the “gradual and careful” approach should be retained.


• As a reminder, on CPI, services was cooler-than-expected, though the BoE’s own services figure strips out some of the transport components that drove the data and thus the cooler component may not be entirely reflected on Threadneedle St.


• More pertinently, the balance sheet. The BoE is expected to provide an update on QT. The pace will undoubtedly be slowed from the current GBP 100bln per anum rate from October. Consensus is for a reduction to around GBP 70bln; however, this would actually result in an increase to active sales (due to expected redemptions of GBP 49bln in the period), and as such there is a downward skew to that forecast. Irrespective of the figure, sales are expected to be biased towards the short-end given the market’s focus on upward pressure seen at the long-end.

18 Sep 2025 - 10:25- Fixed IncomeEU Research- Source: Newsquawk