EUROPEAN FIXED UPDATE: Flat trade across global paper as markets await Fed Chair Powell

USTs: -1 ticks, 111-16+

• USTs are flat and have been trading in a very narrow 111-16 to 111-20 range, as traders await an appearance from Fed Chair Powell at 15:00 BST / 10:00 EDT. On that, focus will be on whether Chair Powell’s Jackson Hole remarks indicate any shift in views since recent US data and if he signals a September rate cut, which markets price at ~70% probability. An interesting report via the WSJ suggested the Fed plan to abandon the policy framework introduced in 2020, which focused on low interest rates and inflation risks – the report suggests Powell will stress the adjustment will have no near-term policy impact. Markets haven’t really reacted to this report – the long-end of the curve is ever so slightly higher (vs flat short-end), perhaps given a longer-term inflation anchor.


• In terms of other Fed recent commentary; Collins signalled an openness for a rate cut as soon as next month amid labour market concerns; Goolsbee said the September FOMC meeting is a live meeting and the Fed has been getting mixed messages on the economy, but responded that he didn't want to get his hands tied when asked about a September rate cut.


• Looking at price action, currently contained in a minuscule 4 tick range, and within the confines made in the prior session; downside levels incl. Thursday’s low at 111-14+, with 111-13+ (18th Aug low) thereafter. Some upside levels incl. the prior days best at 111-29 and then should 112-00 be breached, the high from 112-09 (13th Aug high) will be in focus.


• The Jackson Hole Symposium schedule is fairly light; highlights include Powell (mentioned above), and then BoE Governor Bailey, ECB President Lagarde and BoJ Governor Ueda on Saturday. Often is the case at this Symposium, central bank speakers will provide ad-hoc remarks on Bloomberg TV/CNBC – so traders will keep an eye out for those. As it stands, we know Fed’s Collins and Hammack are set to give remarks in the afternoon.

Bunds: +3 ticks, 129.08

• Bunds are also flat and trade in a very narrow 128.94 to 129.12 range; the trough today was made in the moments after the release of German GDP revisions, which were lower than the prelim; Q/Q was revised down to 0.2% (prev. 0.4%) whilst the Y/Y metric declined 0.3% (prev. no growth). This comes after a fairly upbeat set of PMI metrics on Thursday, where there was particular strength in the Manufacturing sector, whilst Services was not so good. ING highlights that “It is still unclear where this optimism is exactly coming from”, questioning whether it is thanks to fiscal stimulus or a less benign take on US tariffs.


• Nothing else on the agenda from a European perspective, with all focus now on the aforementioned comments from Fed Chair Powell. From a technical perspective, traders point out the 50% fib of Thursday’s move seen at 129.26 with a potential break to the high of that day at 129.55.


• Morgan Stanley expects the ECB to deliver interest rate cuts in December and March (prev. saw cuts in September and December). Currently, markets price in a 36% chance of a single 25bps cut by year-end.

Gilts: -13 ticks, 90.50

• Gilts are on the back foot today and underperforming vs peers, albeit within narrow ranges. Nothing really fresh driving things at the moment for UK paper, but perhaps as fiscal-related fears resurge into the Autumn Budget. From a yield perspective, the 10yr has been knocking on the door of the 4.75% mark; traders tout levels above 4.80% as the “danger zone” for Chancellor Reeves and her “black hole”.


• UK paper currently trades in a 90.48 to 90.69 range; downside levels include 90.43 (19th August low); to the upside, 91.22 marks the peak from Thursday. Do note that BoE Governor Bailey will appear in a panel discussion alongside ECB's Lagarde and BoJ's Ueda on Saturday.

22 Aug 2025 - 09:55- Fixed IncomeData- Source: Newsquawk