EUROPEAN FIXED UPDATE: Gilts bounce as Starmer supports Reeves, USTs await data

USTs: +6 ticks, 111-26

• Higher by a handful of ticks in a slim sub-10 tick band, entirely within yesterday's slightly more expansive 111-16+ to 111-30+ parameter.


• Thus far, focus has been on the Reconciliation Bill. In brief, the House Rules vote passed this morning just after 08:20BST. The final House vote is expected at some point between 10:00-12:00BST, and given the Republicans only lost one vote on the Rules bill, the full one should pass.


• However, price action on this has been limited with markets counting down to the packed data docket, headline by NFP but also features weekly claims and ISM Services.


• NFP is expected to show 110k jobs added (range: 50-160k), down from 139k in May. Labour market data in June was mixed: jobless claims rose from May survey levels, ISM manufacturing employment weakened, ADP data was a huge miss and Conference Board surveys signalled rising consumer pessimism on jobs. However, Challenger reported fewer layoffs, and May's JOLTS were strong.


• The data will be scrutinised against market pricing, which implies a 25% chance of a July move, prices a September cut (30.5bps) and at least one more by end-2025 (-66bps by Dec.). As a reminder, on NFP Fed's Barkin has previously estimated that the labour market’s breakeven NFP is 80–100k i.e. a print below this could spark a dovish re-pricing.

Bunds: +27 ticks, 130.22

• Bid, picked up gradually throughout the European morning with newsflow light aside from modest revisions to Final PMIs, no reaction to the prints.


• Focus on an FT article that ECB officials have reportedly been questioning whether recent EUR strength is too much, amid risks of inflation undershooting; the report corroborates the tone of remarks from some at the Sintra conference.


• Bunds at the top-end of a 111-21+ to 111-28 band, while bid the benchmark is entirely within yesterday’s 129.77 to 130.50 range. Aside from data, specifics have been light. Supply via Spain’s auction was well received, selling the top amount with robust demand shown.


• Ahead, we await the above US events for direction.

Gilts: +60 ticks, 92.63

• A firmer start to the day, gapped higher by 23 ticks before extending further to a 92.74 peak. Upside comes after the extensive media rounds undertaken by PM Starmer last night and this morning, showing his support for Chancellor Reeves and reiterating a commitment to the fiscal rules.


• As such, markets are unwinding the pressure seen on Wednesday that saw downside in excess of 150 ticks at one point, the unwind is essentially markets unwinding the prospect of an imminent new Chancellor; as a reminder, the view is that Reeves-Starmer is among the most market friendly Labour options, with any other Chancellor seen as likely to seek looser fiscal rules to fuel spending.


• While Gilts have gotten as high as 92.74, the benchmark remains shy of Wednesday’s 93.41 peak and the WTD high above at 93.76. Amidst these moves, focus on yields as they recover from yesterday’s spike; 10yr down to 4.51% vs a 4.68% peak on Wednesday, 30yr to 5.30% vs 5.45%.

03 Jul 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk