EUROPEAN FIXED UPDATE: EGBs and Gilts hit marginal new WTD lows, USTs await CPI & Trump

USTs: +2 ticks, 110-08

• A slightly firmer start to the session with the risk tone tepid and fixed easing from the lows seen on Monday as the dust settles following tariff announcements between the US and China. At the top-end of a 110-02 to 110-09 band.


• Specifics since have been quite light and nothing that has fundamentally shifted the narrative for the complex. Attention for USTs is firmly on the April CPI print. A release that is perhaps slightly less pertinent given the recent US-China progress; however, it will still be scrutinised for insight into the Fed’s deliberations.


• On CPI, Wells Fargo writes "pre-emptive inventory building and fears of consumer pushback should keep the anticipated acceleration in consumer prices at bay until at least May.".


• Monday’s trade announcements saw around 10bps of total 2025 easing removed by the end of the day with markets now not pricing a 25bps cut until the September gathering.


• After the data we have remarks from President Trump at 15:00BST in the Middle East. Reports in Axios on Monday suggested he was aiming to return with over a USD 1tln worth of deals.

Bunds: -26 ticks, 129.52

• A touch softer and, in contrast to USTs, has eked out a marginal new WTD trough at 129.43. However, despite this, the narrative is much the same as the benchmark consolidates from Monday’s marked sell off and await fresh insight on EU-US talks.


• On that, US Treasury Secretary Bessent was out this morning with the same type of language on the EU, describing the progress as being a little slower and this time added that regional differences among EU member nations could be a factor behind the slower progress.


• Docket for the bloc is focused on supply, Italy offered no reaction while Germany is due shortly, but before that we got the May ZEW survey for Germany which saw a jump in economic sentiment but an unexpected fall in current conditions.


• Metrics didn’t spark much of a follow through to Bunds, leaving them in the red but around 10 ticks off the above low into the discussed US events that will likely drive action for the day, barring a new tariff update.

Gilts: -18 ticks, 91.63

• The marginal underperformer, and in a similar fashion to Bunds the benchmark has made a new WTD low at 91.51 vs 91.63 on Monday.


• Gapped lower by 13 ticks at the open and then slipped a bit further to the above base. An open that followed the latest UK jobs data which, in summary, showed that the labour market continues to cool but at a gradual pace with the rate of wage growth slowing but still at a level that the MPC is unlikely to regard as being consistent with the inflation target (recall recent commentary from Lombardelli).


• Furthermore, the series is unlikely to narrow the divide on the MPC whose members will be waiting for further clarity in the weeks ahead of June's MPC, and months before August's (if the quarterly pace of reduction holds) on tariffs/reciprocals and the accompanying impact on the UK economy.


• Overall, the series sparked a modest hawkish reaction evidenced by the relative underperformance of Gilts and the trimming of a bps or two worth of implied BoE easing by end-2025.

13 May 2025 - 10:15- ForexData- Source: Newsquawk