EUROPEAN FIXED UPDATE: EGBs/USTs bid on the risk tone while Gilts focus on Threadneedle St.

Analysis details (10:50)

• EGBs are firmer and currently benefiting from traditional haven allure as the broader risk tone continues to deteriorate despite an absence of fresh catalysts. Action which follows on from and is seemingly an extension of the downbeat APAC/Wall St. handover. Throughout the morning the EGB upside has been fairly even with the exception of modest pressure/concession in the German 15yr pre-supply. An outing which was unsurprisingly well received given the modest size on offer and the aforementioned concession; though, there was little immediate follow through to Bunds which remain around the 132.65 peak and someway from the Monday/Tuesday double top at 133.05/06.


• Conversely, Gilts are the sole core benchmark in the red as we near Thursday’s BoE announcement where another 25bp hike is expected though there is around a 35% chance of 50bp priced and 75bp of total tightening implied by February 2023. Pricing which is markedly more hawkish than either the ECB or Fed at this stage. For reference, The Times’ Shadow MPC voted 8-1 in favour of a 25bp hike. Interestingly, but perhaps unsurprisingly given the elevated uncertainty, the entire committee said forward guidance should not be provided. Currently, Gilts are just below Tuesday’s 94.87 trough with the next support band seen between 94.50-60, which captures lows from the 14th and 17th of July.


• USTs are faring relatively well and giving up some of the marked concession which was built in on Tuesday's session both before and after the afternoon's data docket, concession which comes ahead of today's quarterly refunding announcement. Though, we are above Tuesday’s 110.26+ low by circa. 10 ticks as it stands and therefore a return to/test of this figure is a possibility in the run up to the 13:30BST update. An announcement that, accounting for Monday's latest estimates, could see a USD 2bln monthly increase to all nominal coupon auctions and FRNs writes Oxford Economics, adding that they expect upside of this magnitude to continue until at least end-2023. As a reminder, today's announcement includes in-depth details for the next three months only. Elsewhere, the space is cognisant of the overnight action from Fitch, though the incremental downgrade has no immediate impact but serves to further underscore the complicated political and by extension fiscal backdrop in the US, particularly as a shutdown becomes a possibility once more in October; click here for newsquawk analysis on the downgrade. Following Fitch, Moody's is now the only remaining big three agency with a AAA rating for the US.

02 Aug 2023 - 10:45- Fixed IncomeResearch Sheet- Source: Newsquawk