EUROPEAN FIXED UPDATE: Gilts underperform on more unfavourable developments for Reeves, Bunds bid

Bunds: +32 ticks, 128.50

• Firmer and at the top-end of a 128.15-128.58 band. Specifics a touch light so far for Germany with the Bundesrat debate into Merz’s constitutional and fiscal reform underway. No fixed time for the vote though it is expected to pass with the necessary two-thirds majority for constitutional reform.


• Elsewhere, attention on EU leaders formally discussing the idea of common debt, following remarks from Greek PM Mitsotakis who called for a joint borrowing facility and possibly even grants. Common borrowing was done in the COVID-era and has already received support from the likes of French President Macron and, more pertinently, some of the nations which are against such measures. However, the FT reports that the Netherlands and Germany remain opposed, though this could change once a new Merz-led coalition is in power.


• Joint borrowing would weigh on EGBs, though the continued opposition from some key nations even after the vocal support from others may well be adding to the bullish bias. We remain attentive to any shift in positions ahead of the Paris leaders meeting on Ukraine next Thursday.


• More broadly, strength this morning comes from the downbeat risk tone which broadly speaking appears to be a continuation of the recent narrative of taking risk off the table into the April 2nd tariff announcement.

USTs: +4 ticks, 111-07

• Slightly firmer, in-fitting with action in Bunds as the risk tone remains under pressure this morning. US specifics a little light thus far though the docket ahead is packed.


• Firstly, POTUS is due to give remarks from the Oval Office at 15:00GMT alongside his Defence Secretary. Given Hegseth’s inclusion the remarks may be focussed on Iran, with rhetoric from the Supreme Leader this morning punchy. Alternatively, the remarks may focus on Ukraine while if there is a Q&A the officials will undoubtedly be asked about since-denied reports that Musk could be briefed on plans for a potential war with China.


• Thereafter, Fed speak begins with Goolsbee (2025 voter, Dove) the first scheduled official but focus will primarily be on Waller who is expected to speak about his dissent on the balance sheet adjustment.


• As it stands, USTs are at the upper-end of a 111-00 to 111-09 band, with yields softer across the curve which itself is incrementally steeper.

Gilts: -19 ticks, 91.85

• Gapped higher by a handful of ticks given the lead from EGBs but then succumbed to the morning’s borrowing data and slumped to a 91.73 trough. However, as the risk tone deteriorated, the benchmark lifted off worst and briefly got back to within reach of the 92.00 mark in a 91.73-92.12 band; though, ultimately, Gilts remain under notable pressure.


• PSNB showed a larger-than-expected borrowing figure alongside a downward revision to the prior which has taken borrowing for the 11-months of the current FY to the GBP 132bln mark, exceeding the GBP 127.5bln forecast by the OBR for the entire FY period. A series which is not a favourable outturn for the Chancellor ahead of next week's Spring Statement.


• Further headaches for Reeves will stem from reports that the OBR is set to essentially halve its growth forecast for 2025 to around 1% from 2% according to The Telegraph; a downgrade which, if realised, will draw significant media attention as Labour has made growth their main priority.

21 Mar 2025 - 09:55- ForexEU Research- Source: Newsquawk