EUROPEAN FIXED UPDATE: Gilts edge higher into the BoE and Trump's announcement, USTs & Bunds slip slightly

USTs: -6 ticks, 111-11

• In brief, the FOMC left rates unchanged and highlighted that risks to both sides of the mandate have increased. Powell kept his options open and didn’t add too much, maintaining a data-dependent and wait-and-see approach to policy.


• Initially sparked a knee-jerk lower before USTs hit a 111-22 high for Wednesday, however, this proved fleeting and reversed, though it remained above the earlier 111-04 trough.


• Further modest pressure was seen thereafter on reports that Trump is to rescind global chip curbs; a bearish bias that has continued through APAC trade and into the European morning.


• Overnight updates focussed on the trade front, as Trump’s language on China was mixed and he also flagged a “major trade deal” today, reportedly to be with the UK (see Gilts).


• Currently a touch into the red but above yesterday’s low in a 111-11 to 111-19 band. Yields are slightly firmer as a function of this and action is even across the curve, holding on to the modest flattening that we saw overall on Wednesday.


• Ahead, weekly jobless claims are due before the NY Fed SCE, in March it showed an increase in near-term inflation expectations and a slight moderation further out alongside an expected deterioration in the labour market.


• Finally, 30yr supply rounds off the week’s auctions after a robust 10yr and an improved 3yr, though the comparison is skewed as it came in the immediate aftermath of Liberation Day.

Gilts: +6 ticks, 93.48

• Opened bang on the unchanged mark and despite an initial slip to a 93.35 low, comfortably above Wednesday’s 92.79 base, the benchmark has since been on a gentle grind higher despite the constructive risk tone as participants prepared for upcoming UK-specific risk events. Holding around its 93.54 session peak.


• Awaiting Trump’s 15:00BST press conference for details on a trade announcement which has since been confirmed to be between the US and UK. Politico highlights that the points of the “heads of terms” announcement we don’t know are how far any tariff cut on steel/autos will go, future pharmaceutical exemptions and whether the film industry measures will apply.


• From the UK side, we don’t know what concessions the UK has offered beyond those on car exports, digital service tax and some agricultural adjustments.


• Before that thought we get the BoE where rates are expected to be cut by 25bps in a unanimous decision though the magnitude could be subject to dovish dissent. From the statement/Bailey we look for any signs that the BoE is shifting from its quarterly pace (focus around the “gradual and careful” language to easing) and if they still believe the upcoming inflation “bump”, as Bailey labelled it, will be transitory.

Bunds: -12 ticks, 131.40

• Softer, in-fitting with USTs and the constructive risk tone. In contrast to the US and UK, newsflow for the bloc has been a little lighter.


• No move to a surprisingly strong set of German Industrial data for March this morning; however, much of this was likely frontloading ahead of US tariffs and it remains to be seen if the momentum can continue into Q2.


• At the low end of a 131.35 to 131.65 band and entirely within and at the top-end of Wednesday’s much more expansive 130.79 to 131.72 parameters.


• No reaction to Spanish supply.

08 May 2025 - 09:50- ForexEU Research- Source: Newsquawk