EUROPEAN FIXED UPDATE: Gilts initially pressured after CPI; overall, benchmarks broadly contained into Fed & awaiting geopolitical developments.

Bunds: -9 ticks, 130.67

• Currently in the red, though only marginally so. Holding towards the lower-end of a 130.58-92 band. The low for the session printed alongside the UK CPI release (see Gilts), though the move in Bunds proved short lived and the benchmark quickly climbed back towards unchanged levels.


• Overall, the benchmark is in a holding pattern into the FOMC (see USTs) and updates on the geopolitical and/or trade fronts. In brief, despite the increasingly escalatory rhetoric and reporting on Tuesday and into Wednesday morning, the US has not yet gotten directly involved in the Iran-Israel conflict. An update to this remains the key risk for markets in the near term.


• The docket for Europe is light aside from a handful of ECB speakers, a schedule that is headlined by Chief Economist Lane, though we do not expect a text release from him.

Gilts: -4 ticks, 92.65

• Opened lower by a handful of ticks and then slipped to a 92.48 low with downside of 20 ticks on the session. A bearish open that was driven by the lead from fixed peers, as the risk tone continues to recover, and following the digestion of UK data.


• In brief, CPI came in broadly unchanged from the prior in May, given the offsetting influences of air fares, fuel costs and food prices. Pertinently for the BoE, the services metrics were cooler than forecast and markedly so M/M. However, the release is somewhat stale given the recent uptick in energy prices driven by the Middle East and the accompanying inflationary implications.


• Furthermore, the headline Y/Y either printed in-line or hotter-than-expected depending on the newswire consensus used, a point which seemingly factored into the hawkish move in GBP and EGBs (Gilts not open) at the time of release.


• For the BoE, the series does not change much as the base case was already for an unchanged outcome this week.


• After the initial move lower, Gilts have since made their way back towards opening levels and are marginally in the red but pretty much in-line with peers.

USTs: -1 tick, 110-26

• As above, USTs have been exhibiting a modest bearish bias throughout the morning, given the improvement in the risk tone seen as the US is yet to get directly involved in the Iran-Israel conflict. However, this has been limited in nature with USTs only lower by at most 4+ ticks.


• The docket is headline by the FOMC, but before that May’s Building Permits/Housing Starts and Weekly Claims are due; latter expected at 245k (prev. 248k).


• Turning to the Fed, consensus is for rates to be maintained in a 4.25-4.50% band. Currently, market pricing implies just a 1% chance of a 25bps cut this evening, a cut is not fully priced until October (-30bps) and is around 4bps shy of another in December.


• From the Fed, we are attentive to see how the recent cooler-than-expected price prints (reminder, PCE due June 27th) are assessed against the potential inflationary implications of Middle East driven energy upside. In addition to the uncertainty posed by global trade policy and the implications it has/may have for US data; particularly for when they believe the tariff impact will be seen in the inflation data.


• Overall, the meeting will likely be characterised as a wait-and-see affair in the near term. Insight may be drawn from Chair Powell, though he will likely echo this sentiment; as such, the SEPs could take centre stage, particularly to see if there is a hawkish revision from two 25bps cuts by end-2025 to just one, given the above potentially inflationary points of uncertainty.


• Ahead of the announcement, USTs reside in a thin 110-22+ to 110-30 band, leaving yields marginally firmer across the curve.

18 Jun 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk