EUROPEAN FIXED UPDATE: Gilts outperform as the UK labour market cools, USTs await US-China day two

Gilts: +62 ticks, 92.44

• Outperforming, gapped higher by 55 ticks after a dovish UK labour market series. This caused Gilts to open at 92.36 before extending to a 92.66 peak with gains in excess of 80 ticks on the session at best.


• In brief, the data showed a significant fall in the timely HMRC Payroll indicator and a downward revision to the prior, marking the largest fall since early-COVID. However, ONS caveats that the collection time of the series means it is subject to more uncertainty than normal; a statement of note given the figure is often subject to significant revision.


• Additionally, the accompanying wage figures came in cooler than expected. Overall, the series is dovish and adds to the odds of more BoE cuts this year. In terms of timings, markets price the next cut in September, -27bps vs 19.4bps pre-release. In the near term, there is around a 10% implied probability of a June cut while August has increased to -18bps vs 15bps pre-release.

Bunds: +33 ticks, 130.63

• In the green but with upside of only around half of that seen in Gilts at best. Specifics for the bloc include the latest ECB SMA and remarks from Villeroy, who said that while policy has now been normalised and the ECB is in a “favourable zone” this does not mean they are “static”.


• Bunds spent much of the APAC session just about in the green, with upside of a handful of ticks. Thereafter, a modest bounce began to emerge in the early European morning as the general risk tone came under some pressure. The move does not appear to have a specific fundamental catalyst attached to it.


• A slight extension to 130.60 vs a 130.48 open, was seen alongside the discussed UK labour series. Upside was exacerbated heading into the European cash equity open and has continued since to a 130.75 peak, strength which is a function of the tepid and gradually deteriorating European risk tone.


• If the move continues, Friday’s high is just above at 130.77 before 130.99 from Monday and then last week’s 131.47 peak.


• Ahead, the European docket is light aside from a 2030 Bobl auction, the tap should be much better received than the technical failure from early-May, a failure that was primarily due to Bunds moving as now-Chancellor Merz failed to secure Chancellorship in the first round ratification.

USTs: +5 ticks, 110-10

• Broadly in-line with Bunds though the magnitude of gains is a little less, given that US equity futures have proven to be more resilient than European peers this morning; though, US equity sentiment is still very much on the back foot.


• Thus far, this has taken USTs to a 110-12 peak. If surpassed, Friday’s pre-NFP high resides at 110-29.


• Specifics for the US have been a little light so far, as markets await the resumption of US-China trade talks in London at the slightly later than expected time of 10:30BST/05:30ET; no reason has been provided for the 30 minute delay.


• While we wait for those talks to resume and then any indications of progress from them, the US docket is otherwise a little sparse aside from a 3yr note auction this evening and then remarks from President Trump at 21:00SBT/16:00ET, Trump is expected to focus on the US army and likely LA.

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