EUROPEAN FIXED UPDATE: Initial modest divergence gives way to a general bid as China tempers the tone

USTs: U/C ticks, 110-24+

• Modest divergence once again in the early European morning but the opposite of action at that point on Monday with USTs in the red while Bunds remain in the green. However, the divergence is significantly less stark than has been the case at points in recent sessions, as bonds generally came under pressure as the tone improved post-European cash open.


• USTs were lifted to a 110-25 peak late on Monday and climbed by a few more ticks to a 110-27+ high overnight, driven by the digestion of Fed speak; Waller (voter) said under the large-tariff scenario with a significant economic slowdown, he would favour cutting the policy rate sooner and more than previously thought.


• As the risk tone continues to improve in the European morning (see equities), fixed has pulled back with USTs briefly down to a 110-17 low and in the red by just under 10 ticks. Amidst this, yields were firmer across the curve though it is currently a touch flatter overall, in contrast the steepening seen in recent days.


• However, the tone was clipped by a BBG source report that China has ordered a halt to Boeing deliveries, a report which lifted USTs from the mentioned trough to just above opening levels of 110-21+ and approaching the overnight high; as such, USTs are now near unchanged on the session with yields slightly mixed but the curve still flatter.


• The US docket today is a little light with the Discount Rate Minutes scheduled and continued focus on earnings as the reporting season ramps up. Note, Fed’s Cook (Voter) speaks at 19:10ET today, providing acceptance remarks at an alumni event, but that falls onto Wednesday calendar for UK/European participants.

Bunds: +29 ticks, 131.33

• In the green but has been pulling back from its 131.57 overnight high throughout the morning as the risk tone improves, as outlined above. Down to a 131.18 low but was lifted off that by around 15 ticks by the aforementioned China and Boeing update.


• The latest ECB Bank Lending Survey showed a tightening of credit standards for loans to firms with demand for loans falling into the red, driven by higher perceived risks relating to the economic outlook. On the flip side, housing standards eased, and demand continued to increase. Note, the survey was conducted between the 10th-25th March and as such does not incorporate numerous tariff updates.


• German ZEW saw the current conditions component print much better than expected, though still at subdued levels; however the sentiment figure was soft and reflects “massively increased global uncertainty” from tariffs. Modest two way action on the release, but ultimately settled at pre-release levels.


• Ahead, EU’s Seibert is expected to deliver an update around 12:00BST on the talk between negotiator Sefcovic and the US’ Lutnick & Greer, a meeting that reportedly lasted for around four hours on Monday.


• Note, ECB’s Lagarde is on the docket but as we are in the quiet period ahead of Thursday’s announcement she cannot speak directly on monetary policy. Nonetheless, as it stands, 25bps is fully priced with 82bps of easing implied by end-2025.

Gilts: +40 ticks, 91.87

• In the green, gapped higher by 23 ticks to 91.72 before pulling back modestly to a 91.67 trough as the tone improved. However, the discussed Boeing-China report moved the benchmark above opening levels and to a 91.93 peak.


• Follows the morning’s labour market data, the series didn’t really spark much movement in GBP at the time. In brief, the series points to a continued cooling of the labour market and while the employment metrics are net-dovish for the BoE, the cooling is yet to materialise significantly in wages which remain elevated. Nonetheless, the series has been superseded by more timely tariff updates.


• Pantheon says the data has enough dovish elements for the BoE to cut in May and signal further reductions ahead, though add that policymakers will remain cautious given that wages are too strong for inflation to reach the 2% target.


• On trade, US VP Vance said late on Monday that Trump “really loves the UK”, as such Vance believes there is a good chance for an agreement that is in the interest of both nations.


• The 2035 auction was broadly in-line with the prior, a slightly lower yield on offer which tailed a touch less than last time though the cover was softer; no real move with markets focussed on ZEW at the time.

15 Apr 2025 - 10:20- ForexData- Source: Newsquawk