EUROPEAN FIXED UPDATE: Gilts gap higher after CPI adds to the odds of a December BoE cut

USTs: U/C, 113-23

• Flat. In a very thin 113-21 to 113-25 band.


• Focus thus far has been on the mixed trade rhetoric out of the US yesterday with Trump previewing his potential meeting with China’s Xi saying he expects the negotiation to be good. However, he then added that maybe the meeting will not occur.


• Otherwise, the US docket is limited owing to the shutdown and Fed blackout; note, Barr is scheduled. On the shutdown, Trump overnight poured some cold water on the situation by saying he won’t be meeting with Dem. leaders until the gov’t reopens. As a reminder, the November 1st healthcare application date is seen as a potential point to watch for progress.


• Elsewhere, supply comes via a 20yr tap.

Bunds: +2 ticks, 130.23

• Contained, but has experienced a slightly choppy morning.


• Picked up to a 130.38 peak with gains of c. 15 ticks on the discussed UK inflation report before paring and falling back to a 130.16 low, with downside of around five ticks at most.


• Specifics for the bloc a little light thus far, Bunds specifically await supply which should be well received, though the recent string of poor and deteriorating taps adds some uncertainty into the sale.


• Ahead, ECB’s de Guindos and Lagarde due, though recent comments from officials have not changed the narrative into the end-October meeting. October’s ECB is set to be a non-event from a policy perspective; though, of course, any hints around December or beyond will be keenly sought.


• Elsewhere, OATs trade broadly in-line with EGB peers in a 123.19 to 123.44 band while the OAT-Bund 10yr yield spread remains steady around the 80bps mark. For OATs, Amova’s Williams spoke to Bloomberg and outlined that they added to their overweight position on French debt in September, and believes OATs are still at attractive levels despite recent sovereign downgrades. On the spread, he believes a move above 100bps would cause the ECB to step in.

Gilts: +68 ticks, 93.60

• CPI for September remained at 3.8% Y/Y, cooler than the market and BoE forecast of 4.0%; pertinently, September represented the peak in the BoE’s inflation forecast horizon. Accompanying measures were also cooler-than-expected and while there were some slightly more mixed internals behind the headline figure and somewhat unusual moves in some subset components, the overall narrative is clearly a dovish one vs. consensus.


• As such, Gilts gapped higher by 54 ticks to 93.45 and then extended further to a 93.78 peak, notching a contract high. Action that pushed the UK 2yr yield down to 3.77% and below the 3.80% mark that desks have been attentive to recently, the 10yr also moderated to 4.4%, convincingly taking out 4.45%.


• Action that will be welcomed by Chancellor Reeves as it continues and extends the recent pullback in UK yields, lessening the fiscal burden she has to resolve in November. Furthermore, the print will also be welcomed by Threadneedle St. as a potential sign that the inflation may have topped out a little bit lower than they thought would be the case in Q4, a narrative that paves the way for a December cut.


• Post CPI, markets ascribe a near 80% chance of a 25bps cut in December vs c. 44% pre-release. For November, while the odds have ticked higher to over 30% vs c. 10% pre-release, the base case remains a hold at that meeting given the economies general performance and the looming November Budget; points which allow/justify the BoE remaining on hold in November and waiting for December to ease, when a new round of projections will also be available.

22 Oct 2025 - 10:05- Fixed IncomeEU Research- Source: Newsquawk