EUROPEAN FIXED UPDATE: EGBs slightly heavy into the MMF and supply, Gilts lag on CPI, USTs flat before PPI

Bunds: -8 ticks, 129.37

• The main event today for the bloc is the EU Multiannual Financial Framework (MFF) presentation, i.e. the bloc’s budget for the next seven years. As it stands, Commission President von der Leyen is scheduled to unveil it at 16:00BST.


• Ahead of the unveiling, Politico reports that officials are closing in on a EUR 1.7tln headline figure for the 2028-34 budget, vs the EUR 1.2tln in the current period; equating to 1.23% of EU GNI vs 1.1% currently. Of course, the proposal VDL outlines can and will be altered over the next two years.


• Bunds a little heavy into this, but only modestly so, with downside of around 25 ticks at worst. Another point of potential bearishness comes in the form of supply, with a dual-tranche Bund tap due; however, the strong history and relatively modest size on offer mean this should pass without incident.


• Elsewhere, trade updates have been quite light in hours. Though we did get remarks from POTUS overnight who stated that talks with the EU are ongoing and progress is being made; a view that may also add to the bearishness in EGBs. Updates on this front, from the EU side at least, potentially to be a little lighter today given focus on the MFF.


• In the red, but well off lows in a 129.19-56 band, matching Tuesday’s trough ahead of the 129.12 low from last Friday and thereafter the current WTD base at 129.08. For reference, a decent amount of the morning’s downside occurred alongside UK CPI which printed hotter-than-expected and weighed on EGBs, with Gilts closed at that point (see Gilts for more).

OATs: -1 tick, 122.63

• PM Bayrou’s plan to save EUR 43.8bln from the budget in 2026 in order to get the debt-to-GDP ratio down, in-line with existing commitments/targets. The proposal has already drawn criticism from various political parties, unsurprisingly National Rally (RN) has said they will move to censure Bayrou if he does not change his plans.


• Much more pertinently, the Socialist Party’s (PS) First Secretary Faure has said “on the current basis, the only possible perspective is censure”, with the Socialists taking issue with the “most modest” in the workforce being hit by the de-indexing of various benefits, pension and salary contributions/taxes, while the “ultra-rich” will be spared; further, much opposition to the removal of May 8th holiday. However, Faure says the PS remains open to compromise, a stance that keeps the door open to Bayrou’s reform and premiership alive.


• As it stands, Bayrou has until mid-September to formally present his plans, so there is significant time for potential compromise; unless parties on both the left and right agree to support the same censure motion. In the meantime, we are attentive as to what the points of compromise will be and if they will limit the planned reduction in debt-to-GDP ratio, as even under the current plan France will exceed the EU’s 3% ceiling for many years.


• OATs traded broadly in-line with peers on Tuesday and they continue to do so today, lower by around 20 ticks at worst and have since, in-line with Bunds, picked up off that base significantly; but, remain entirely within yesterday’s parameters.

Gilts: -23 ticks, 91.34

• Underperforming, opened lower by 19 ticks and then slipped another 21 in short order to a 91.17 base. Notching a new WTD low and taking Gilts back to 91.16 from the first week of June. If breached, then we look to 90.11 from May as the next major point of support.


• Pressure emerged on the morning’s June inflation. A hotter-than-expected series, driven by motor fuel prices. While hotter, the series has only sparked a relatively modest move in BoE pricing with c. 1bps of implied easing removed from August and only around 3bps by end-2025.


• Two potential factors behind this. Firstly, base effects and the recent Middle East induced energy upside potentially influenced the motor fuel component, which drove much of the series. Secondly, the focus from Governor Bailey in recent days on the labour market comes ahead of the latest set of data on Thursday; as such, participants may choose to wait and see how that shakes out before updating their calls.


• Data aside, newsflow for the UK limited into the last PMQs before recess, an appearance that will likely be dominated by the Afghanistan data-leak scandal.

16 Jul 2025 - 10:00- Fixed IncomeData- Source: Newsquawk