EUROPEAN FIXED UPDATE: Gilts lag after concerning borrowing data, JGBs hit on the BoJ

JGBs: -17 ticks, 136.19

• Pressured overnight on the BoJ. While the decision was unchanged at 0.50% as expected, that was subject to two hawkish dissenters (Takata and Tamura) who wanted a 25bps cut. Additionally, the bank is to commence sales of its ETF and J-REIT holdings at a very slow pace; underscored by Ueda, who said it would take over 100 years to exit their position at the current pace.


• The hawkish dissenters weighed on JGBs and sent them lower from 136.43 to a 136.03 session low. Thereafter, JGBs pared a touch into Ueda.


• Ueda didn’t really give too much away with his focus on the economy, data and tariffs, unsurprisingly. However, while familiar, his underlying message that the normalisation process can continue if the economy and prices proceed as forecast is notably in the context of domestic political instability.


• Overall, it seems that an October move is on the cards assuming that data, October 1st Tankan in focus, presents no surprises and the October 4th LDP leadership contest occurs without a major curveball; helpfully, Ueda is scheduled to speak on October 8th. The implied odds of a hike stand at around 45% for October, vs c. 30% on Thursday.

Gilts: -33 ticks, 90.85

• Underperforming. Opened lower by 28 ticks and then slumped another 18 to a 90.72 trough. Pressure stemmed from the lead from peers with JGBs in the red, Bunds at a fresh WTD base and the morning’s UK data.


• Firstly, retail sales for August were stronger than expected across the board supported by good weather. However, the July figures were subject to downward revision.


• Secondly, and most pertinently, a much larger than expected borrowing figure. PSNB in August stood at GBP 17.96bln, eclipsing the newswire consensus and the GBP 12.5bln forecast by the OBR. While there are some caveats to the August figure, the trend is a dire one for UK finances as evidenced by the fiscal YTD tally (i.e. April to August) of GBP 83.4bln vs the GBP 72.4bln forecast by the OBR.


• Figures that add to the pressure Chancellor Reeves is under as we look to the Autumn Budget at the end of November. Prior to the data, the view was that she would need to raise around GBP 20bln to plug the gap, today’s data points to the figure being even larger. A view that has driven the UK’s 30yr yield back above 5.55% and now looking to the YTD peak at 5.75% if the fiscal situation deteriorates further.

USTs: -4+ ticks, 112-27

• Waiting for Fed speak as the post-FOMC blackout period lifts. Dissenter Miran will draw focus to gauge just how much easing he wants to see (though the dots provided some indication) and his views on the September meeting.


• Additionally, any unscheduled remarks from the non-votes will be scoured, particularly Bostic, Hammack and/or Logan, to see who the official(s) were who wanted to leave policy unchanged; reminder, Chair Powell said support for a cut was broad but not unanimous.


• Daly (2027 voter) is scheduled, but she typically resides on the dovish side of the spectrum.


• Fed aside, the Trump-Xi call is another major point of focus, Newsquawk primer available. A call that will be scoured for any suggestion of an in-person meeting later in the year, updates on tariffs and/or geopolitics.


• USTs also in the red, echoing peers, though with action more contained ahead of the discussed catalysts. At a 112-24+ trough, just above Thursday’s 112-23+ WTD base.

Bunds: -20 ticks, 128.31

• Softer, following the above. Down to a fresh WTD low at 128.18. If the pressure intensifies, we look to support at the figure before 127.82, 127.63 and 127.61 from recent weeks.


• Specifics a little light this morning, the bearishness mainly a function of the pressure seen in peers and the increasingly constructive European risk tone with futures in the region now firmer by as much as 0.6% vs contained performance in the cash equity pre-market.


• August producer prices hit this morning, coming in negative and printing beneath the forecast range. Destatis determined the drop was primarily due to lower energy prices, and when adjusted for energy the figure was actually 0.8% Y/Y vs the -2.2% reported.


• Ahead, the sovereign docket is in focus with France subject to review by DBRS, Fitch on Italy and Moody’s on Greece. The main focus will, once again, be France after the downgrade by Fitch last week. DBRS currently has France at AA, negative.

19 Sep 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk