EUROPEAN FIXED UPDATE: Gilts gap higher on soft growth data while JGBs lift on Rengo

JGBs: +6 ticks, 138.20

• The primary update was the first round of Rengo agreements coming through. Initial reaction to the 5.46% average hike was hawkish, with it exceeding 5% for the second time. An update which pushed JGBs lower from 138.14 to 138.09 in a knee-jerk reaction.


• However, this proved short-lived and entirely retraced with the benchmark extending to a 138.35 session high. A dovish move which was spurred by the assessment that the 5.46% figure is perhaps a little more shy of the initial 6% demand than markets were expecting. As a reminder, the agreement is usually revised down incrementally over the next two/three rounds as smaller companies are added into the assessment.


• For the BoJ, the update and eventual dovish reaction chime with the markets view that the BoJ is set to be on hold for the next few months with a hike not priced until the October meeting.

USTs: -5 ticks, 110-24

• Pressured, tracking the US risk tone with equity futures firmer across the board after Thursday’s session of pressure and markets entering correction territory. USTs at the bottom-end of a narrow 110-24 to 110-31 band


• The docket ahead features the UoM survey which will be scoured for forward-looking insight into inflation after the week’s CPI/PPI measures; reminder, import prices due on March 18th before PCE on March 28th.


• On UoM, Fed’s Williams on March 4th said it is “worth watching UoM inflation expectations data.”; at this point Williams said he doesn't see the need to change policy with the economy in a good place though acknowledged it is hard to have a base-case outlook.


• Thereafter, attention returns to POTUS who will be signing another batch of executive orders.

Bunds: -19 ticks, 127.25

• Softer, tracking the broader risk tone which continues to inch higher this morning. Additional pressure stemming from the inflationary implications of Trump’s latest tariff rhetoric, with the US President assuring markets that he will not change his mind on April 2nd tariffs.


• On the measures, ECB’s Lagarde said they are concerning and will damage the global economy.


• Elsewhere, German Wholesale Prices jumped Y/Y, driven by upside in food prices and metal products; the latter a point of note as the survey window does not account for the latest metal tariff measures from the US. Alongside that, the Final German inflation series saw some of the headline figures revised down, a move that was primarily due to lower energy prices. Pertinently, the core (ex-food/energy) was revised up to 2.7% from 2.6%.


• Points which all factor on the hawkish side and as such Bunds have been waning from their 127.58 overnight peak to reside in the red and just off a 127.20 base, a tick below Monday’s trough. If the pressure continues, support factors at the figure and then 126.81 from Thursday.


• Note, while German fiscal and coalition talks have been one of the main points of focus, newsflow on it has slowed significantly since Thursday’s Bundestag debate; as a reminder, the next reading is scheduled for Monday and as such updates on the negotiations will likely be in focus over the weekend.


• Finally, we get ratings updates from France (AA-) who despite the deteriorating fiscal backdrop may avoid a cut this time due to October’s negative outlook being relatively recent alongside the significant uncertainty around the broader bloc’s fiscal path. Additionally, Greece is scheduled at Moody’s who may lift the sovereign into investment grade.

Gilts: +11 ticks, 91.78

• Outperforming on account of a soft set of growth data for January. The M/M was softer than the market had been looking for, driven primarily by a slowdown in manufacturing. However, such an outturn was not entirely unexpected given the jump seen in December's release.


• For the BoE, the series is unlikely to have significant impact with Threadneedle St. very much focussed on inflation and other price points. However, it has still spurred a modest dovish shift in market pricing with a June cut now fully priced at 25.8bps (vs. 24.1bps pre-release).


• Action which has also been reflected in the benchmark which gapped higher by 36 ticks before extending another three to a 92.03 session high. If the move continues, resistance features at 92.46 and 92.56 from Tuesday and Monday respectively.


• More recently, Gilts have faded from best levels and are back below the 92.00 mark by around 20 ticks, a pullback which is perhaps a reflection of action in peers and also influenced by the latest BoE/Ipsos survey which saw the inflation view lifted across all survey points.

14 Mar 2025 - 10:00- ForexEU Research- Source: Newsquawk