EUROPEAN FIXED UPDATE: EGBs & USTs climb as Central Bank easing bets increase on stagflation/recession concerns

JGBs: +10 ticks, 142.36

• Opened higher given the risk tone and continued to climb to a 142.61 peak with the odds of tightening by the BoJ trimmed further with just 5bps of tightening implied for the remainder of 2025.


• For Japan, we have seen officials say it is too soon to determine how the US tariffs will impact wages and the pass-through of costs, particularly for smaller firms. Pertinently, the Keidanren Chair said they need to examine if reducing rates could be effective with real interest rates remaining still far from neutral.


• On the fiscal side, we await further details on a report that PM Ishiba is considering an extra budget which could potentially occur in April.

USTs: +12 ticks, 113-13+

• Firmer and above the 114-00 handle to a 114-10 peak, a high that printed just after the re-opening of trade when the selling in Asia was at its most pronounced and saw the Nikkei 225 hit circuit breakers.


• US updates have been a little light this morning, though we have multiple appearances scheduled from President Trump later on at a sports event and then meeting the Israeli PM.


• The main development this morning came from China, with reports via Bloomberg sources that they are considering frontloading stimulus. An update which prompted a bit of a pullback from highs for fixed, though only modest at the time.


• Since the European cash equity open, where at one point the entire Stoxx 600 was in the red, the general risk tone has come marginally off worst levels, prompting a bit more of a concerted pullback in USTs to a 113-12+ low. Though, still firmer on the session with the 10yr yield still just below 4%; Friday’s base was 3.86%.


• For the Fed, end-2025 implied easing is at just over 50/50 for five 25bps cuts, marginally more dovish than we were around mid-day on Friday but not at the most extreme when the 10yr yield hit the discussed lows. On yields, the curve is a touch mixed but is markedly steeper, by over 10bps for 2s10s and 15bps for 2s30s; a move that reflects near-term easing on growth and longer-term restrictiveness on inflation, i.e. stagflation.


• On this, Goldman Sachs expects Fed cuts to begin in June (prev. July), looking for three consecutive 25bps moves in the scenario the US avoids a recession. At the same time, the desk lifted the odds of a recession to 45% (prev. 35%).

Bunds: +86 ticks, 131.37

• In-fitting with USTs, notched a 132.02 peak around the European cash equity open when sentiment for the morning was at its worst. Since, as the tone improves, a pullback has occurred with Bunds down to 131.35 though still markedly clear of Friday’s close.


• The response from the EU is yet to be announced. EU Foreign Ministers are meeting today to discuss how they should respond. On that, the Industrial Commissioner Sejourne reaffirmed that the EU response to the US will be united and proportionate, Sejourne also indicated that we should hear the response in the next few days.


• The 132.02 high in Bunds is just a tick shy of the peak from the week of Germany’s fiscal reform and is a significant bounce from the 126.53 low that printed in the days after. As such, the 10yr yield is down to 2.5% but remains some way clear of the 2.31% YTD base.


• For the ECB, markets are now fully pricing a cut in April and imply 85bps by end-2025 (three 25bps cuts and a 40% chance of another). Pricing is being driven by the growth implications of the US measures and looming retaliation; ECB’s Stouranars said the negative impact on Euro-area growth could be anything between 0.5 and 1ppts.


• No reaction to the EZ Sentix for April, which printed below the forecast range and at its lowest since October 2023. More pertinently, the expectations figure declined by 33.8 points in the second-largest move ever for the index with German expectations falling at an even greater pace. Moves being driven by, as Sentix labels it, “Trump’s tariff hammer”.

Gilts: -11 ticks, 93.51

• Initially in-fitting with the above, opened higher by 69 ticks and then extended further to a 94.50 peak before pulling back from best in-fitting with EGBs and USTs. However, the pullback has been more pronounced with Gilts slipping into the red.


• Specifics for the UK have been light, weekend commentary saw Starmer agree with the points of Canada and France. But, we are largely just awaiting an update on the UK-US Economic Deal that was reported as being essentially ready to go just prior to “Liberation Day”.


• On that, a Bloomberg report showed that economists believe the UK is well-placed to secure a trade deal and reduce tariffs from the 10% baseline; a baseline that is already favourable when compared to the 20% figure the EU will be subject to from April 9th.


• Despite the pullback in the benchmark and yields lifting from lows, market pricing still entirely implies a 25bps cut in May with 86bps implied by end-2025, essentially the same amount implied from the ECB.

07 Apr 2025 - 10:00- ForexEU Research- Source: Newsquawk