EUROPEAN FIXED UPDATE: Gilts outperform on soft data, USTs await data

USTs: +3 ticks, 110-25

• A contained start to the day. Nonetheless, an underlying bullish bias remains as the benchmark has eclipsed Wednesday’s post-CPI 110-23 high by a few ticks. Though, the move is yet to test 110-29+ from June 6th. After which, there is a small gap before support at 111-07 and 111-14+ from the 4th and 5th of June respectively.


• Today’s docket is headline by data. Firstly, PPI will add colour to the pricing picture after a cooler-than-expected CPI print for May; data which will feed into PCE models. Alongside PPI, weekly initial jobless claims are expected to pare back a little to 240k (prev. 247k), while continuing claims are seen inching up to 1.91mln (prev. 1.904mln). Thereafter, the QSS hits and will factor into GDP.


• As mentioned, USTs are relatively contained so far in a narrow 110-19+ to 110-26+ band. Given this, yields are mixed but also essentially unchanged with a very minimal flattening bias in play, but one that leaves 2s30s just off the steepest points seen post-CPI.

Bunds: +36 ticks, 131.16

• Contained overnight. Holding onto the bulk of Wednesday’s gains; as a reminder, Bunds peaked at 130.97 following US CPI.


• The early European morning somewhat perversely saw a bout of pressure alongside a soft UK GDP series (see Gilts), while this was enough to notch the 130.73 trough for Bunds the move proved shortlived and was entirely erased around 20-minutes later.


• Thereafter, a bullish-bias remerged, taking Bunds to a 131.27 session high just after the European cash equity open. No clear or specific driver behind the move, but potentially a function of the UK jobs data being correctly assessed, and the deteriorating equity tone.


• If the 131.27 high is breach, Bunds then look to 131.47 from June 5th before 131.50 from the week of May 9th.


• Note, today’s docket has a substantial number of ECB speakers scheduled. However, remarks thus far have not been of any particular note as officials keep the door open to further cuts but provide little in the way of specifics. Ahead, de Guindos, Elderson and Schnabel are due.

Gilts: +40 ticks, 92.96

• Outperforming after a soft set of growth data for April. Metrics propelled Gilts higher by 49 ticks at the open, before climbing a handful more to a 93.10 peak. A high that eclipses Tuesday’s 92.87 best (after a dovish labour report), to a fresh WTD peak.


• A move that has mixed implications for the Chancellor. On one hand, the accompanying move lower in yields and pricing once again implying two more 25bps cuts by the BoE in 2025 is welcome. However, the softer-than-expected growth data is a knock to Labour’s investment and infrastructure-focussed strategy.


• Note, the soft growth metrics may be a function of frontloading at the start of the year given expected US tariffs, with ONS’ McKeown outlining “...signs that some activity may have been brought forward from April to earlier this year” alongside making that point that 3M/3M GDP continues to grow; printed at 0.7%, as expected.


• Furthermore, the very soft Services figure was also due to frontloading. Though this time not because of Trump, as the majority of the pressure stemmed from legal activities (-10.2%) as a result of a sharp increase in house sales in March ahead of stamp duty alterations.


• Overall, while the data is dovish there are caveats to the series and as such the BoE and desks will likely await more data (particularly CPI) and/or trade updates before making a firm decision on whether a cut will be delivered in August or not; currently, markets imply a ~70% chance of a 25bps move.

12 Jun 2025 - 10:00- Fixed IncomeData- Source: Newsquawk