EUROPEAN FIXED UPDATE: Global paper rises, digesting Powell comments; Gilts outperform

USTs: +1 ticks, 113-14

• USTs are firmer today by only a handful of ticks, following on from a positive session on Tuesday. Focus this morning has been on another escalation of US-China trade tensions, this time by the US-side (following China’s move to sanction 5 US-linked companies in the prior session).


• To recap the latest trade-related updates in brief, US President Trump said he is considering terminating business with China having to do with cooking oil – as retribution for purposefully not buying US soybeans. Aside from this commentary has been fairly constructive; USTR Greer spoke positively about previous talks with China. And earlier today, the Chinese Foreign Ministry Spokesperson Lin said the US and China should engage in talks.


• It is worth reminding that the upside today does also follow on from the strength seen in the prior session, where USTs closed higher by 6.5 ticks amidst haven-related flows and after Fed Chair Powell highlighted that downside risks to the US jobs market have risen, which justified a September interest rate cut. Moreover, he added that they may be approaching the end of balance sheet contraction in the coming months and that officials will be discussing the composition of the balance sheet.


• USTs have held an upward bias throughout the European morning, and trades towards the upper end of a 113-08+ to 113-17+ range; the high for today has matched the peak from the prior session. Further upside could see a potential retest of the high from 16th September at 113-18+.


• The US Day sees the release of weekly MBA mortgage applications data. The NY Fed manufacturing gauge for October is expected to improve to -1.4 from -8.7. The Cleveland Fed will release its CPI gauge today. In afternoon trading, the Fed will publish its latest Beige Book. Today's speakers' slate is heavy, and includes: Fed's Miran (voter; no text, only Q&A), Fed's Waller (voter; text and Q&A due), Fed's Schmid (2025 voter; no text expected, Q&A due), Fed's Bostic (2027 voter).

Bunds: +17 ticks, 129.85

• Bunds are currently higher by around 20 ticks and trades in a 129.68 to 129.95 range. European-specific newsflow has been relatively light this morning, aside from ECB's Villeroy, who said the next rate move is more likely a cut than a hike, and the impact of US tariffs on Eurozone inflation should remain negligible. Traders will ultimately be awaiting a 2050/2056 Bund auction later today. As a reminder, recent demand for German bonds has been weak, with an average b/c of 1.6x over the last 4 auctions.


• Elsewhere in Europe, focus has been on the French political situation. In the prior session, PM Lecornu presented his budget to parliament, where he announced the suspension of pension reforms until the next Presidential election. This was a welcome announcement by those in the French Socialist party, where they said they would not vote for a no-confidence motion, according to BFM, citing a lawmaker.


• Markets have seen the pension reform suspension as a positive move, with OATs outperforming vs Bunds this morning; the OAT-Bund spread has tightened in the past two months, currently trading around 78.32 vs the peak from the prior day at 84.50.


• In terms of what’s next for France, lawmakers have 70 days to amend and vote on the budget – and this will require both support from the right (LR) and left (PS). ING posits three main scenarios: 1) invoke Article 49.3 to pass the budget, should it not be agreed on – Lecornu has previously ruled this out. 2) Enforce the budget by “ordinance”. 3) Parliament could extend the 2025 budget into the new year, as they did previously.


• In the near term, focus will be on France’s credit review by Moody’s; previously, the agency has suggested that a rollback on the pension reform would be “credit negative”.


• For Europe more broadly, focus for the day will be on ECB's Villeroy, Lane, Lagarde and de Guindos.

Gilts: +36 ticks, 92.31

• Gilts are currently outperforming across global peers, trading higher by roughly 33 ticks in a 92.07 to 92.39 range. Further upside could see UK paper test levels not seen since early-August – specifically, 92.66 (high from 7th Aug).


• Focus this morning has been on budget-related reporting via the FT; Chancellor Reeves is reportedly reviving plans to overhaul cash ISAs, with Reeves mulling halving the annual tax-free savings allowance to encourage wider investment in the UK stock market. Elsewhere, UK Chancellor Reeves says she is looking at both tax rises and spending cuts in the budget, via Sky News.


• Ahead, traders will await commentary from BoE's Breeden.

15 Oct 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk