EUROPEAN FIXED UPDATE: Gilts tread water into the BoE, Bunds lead after data and supply

USTs: -1 tick, 112-07

• No further insight into the potential fat finger in USTs seen yesterday in the run-up to supply, where 30 minute volume spiked to over 300k from sub-100k throughout the session to that point. As a reminder, the move also occurred alongside a move in the implied odds (via Polymarket) for the next Fed Chair, with NEC Director Hassett’s jumping by just under bp and overtaking former Fed Governor Warsh as the front-runner.


• This potentially explains at least some of the move as, while Hassett is regarded as a more dovish option given his alignment with Trump, placing him as Fed Chair could erode credibility around the Fed’s independence and thus drive the sharp sell off and associated yield upside/curve steepening seen, with 2s30s and 2s10s higher by around 5bps over this period. Price action that is also in-fitting with Rabobank’s call for 2s10s to steepen in the event of Hassett’s appointment.


• Referenced supply came in weak. A soft 10yr after a poor 3yr, ahead of USD 25bln of 30yr bonds this evening.


• This morning, action (and volumes) has been much more minimal with USTs in a very narrow 112-03+ to 112-07 band. Aside from trying to work out the above move, markets have largely been focussed on the latest tariff updates and particularly stacking in relation to Japan; see feed for a full explainer.


• Today’s docket features weekly jobless claims (221k expected from 218k) and continuing claims (1.95mln expected from 1.946mln), alongside Q2 unit labour costs (1.5% expected from 6.6%). Thereafter, we await an update from the Atlanta Fed before the referenced 30yr supply and the signing of an executive order and commentary from POTUS.

Bunds: +14 ticks, 130.32

• No reaction to the morning’s Industrial and Trade data from Germany for June. Though, Bunds did pick up a little bit a handful of minutes after the data came through. The soft set of Industrial data, to the lowest since May 2020, potentially influenced; a series that may have factored into the pressure seen in the DAX 40 future at the time.


• Since, newsflow has slowed a little with Bunds contained around the unchanged mark in a modest c. 30 tick band.


• Aside from supply, which was well received overall and sparked some modest upside in EGBs taking Bunds to a fresh 130.37 high. Ahead, the European docket is headlined by two appearances from ECB’s Rehn.

Gilts: -1 tick, 92.64

• Focus firmly on the BoE. Benchmark opened lower by 14 ticks before extending another six to a 92.45 trough. Since, it has reverted back towards yesterday’s 92.65 close into the BoE.


• The BoE is expected to cut rates and likely via a 7-2 split to ease. However, the full vote breakdown could see a three-way split. Mann and potentially one other (possibly Pill or Greene) likely to vote for unchanged, while Dhingra and possibly the likes of Taylor and/or Ramsden voting for a 50bps cut. Leaving a majority of Bailey, Lombardelli, Breeden and then possibly one or more of Pill, Green, Taylor or Ramsden; depending on the above.


• Ahead, in September, the BoE will be announcing its QT remit for the October 2025-September 2026 period. Currently, the pace is GBP 100bln/yr of Gilt sales. Analysts widely expect this to be trimmed, with Oxford Economics looking for a GBP 75-80bln band. Furthermore, the composition of sales could be tweaked to favour the short-/medium-area of the curve rather than longs, given upside in yields and curve steepening in recent months.


• As a reminder, in recent weeks BoE’s Bailey has said the cause of the steeper yield curve has been greater trade uncertainty and global fiscal uncertainty, adding that while he does not think QT has been driving the movements, they need to look at the interaction of yields and QT. While the update on this is not due until September, the MPC may choose to divulge some details early and/or respond to likely Q&A points.


• Into this, a 25bps move is almost entirely priced, just over 23bps implied. For reference, by end-2025 48.8bps is implied and -86bps by end-2026.

07 Aug 2025 - 10:15- ForexEU Research- Source: Newsquawk