EUROPEAN FIXED UPDATE: JGBs lag as Japan reacts to Bessent, USTs await PPI

JGBs: -30 ticks, 138.10

• Market pricing has seen a hawkish shift overnight, with just over 16bps of tightening now implied by end-2025 vs around 14bps on Wednesday.


• A move that was spurred by a general hawkish shift in the JPY and JGBs overnight. Despite the interview with US Treasury Secretary Bessent midday occurring on BBG at midday on Wednesday, his comment that the BoJ was likely “behind the curve” and will probably need to hike again has been attributed to the overnight price action.


• As a reminder, BoJ Governor Ueda said after the July meeting that he did not believe Japan was behind the curve, describing the risk of that as “not being particularly high”.


• The remark from Bessent continues the tone seen from the Treasury in recent months, calling for the BoJ to “support a normalisation of the yen’s weakness against the dollar”.


• Overnight, JGBs entered the Japanese lunchbreak around the 138.25 mark, around 20 ticks below opening levels. Thereafter, as trade resumed, they slipped to a 137.90 trough, seemingly given the renewed attention on Bessent’s interview. As it stands, holding around 15 ticks off the pre-lunch level.

Gilts: +8 ticks, 92.13

• Began the day essentially flat, before picking up a handful of ticks to a 92.13 peak.


• Initial contained action that was not too surprising given the lead from USTs and Bunds (see below), and as the UK digested the two-way implications of the morning’s growth data for Gilts.


• Firstly, the stronger-than-expected data spurs a kneejerk bearish-bias. With pressure seen in Gilts as the data provides the hawkish contingent at the BoE with more time to scrutinise the development of inflation in the months ahead.


• On the flip side, the data is very welcome by Chancellor Reeves as stronger growth performance trims the size of the “black hole” that Reeves will need to deal with in October, a development that is welcome by the Gilt market and thus provided a bullish driver into the open.


• Overall, Gilts are broadly moving in-line with the general upside seen in EGBs and USTs over the morning, though very modest in nature and with Gilts underperforming peers a touch as participants are yet to commit to a direction following the morning’s data.

USTs: +6 ticks, 112-11

• Firmer, but only modestly so. Digesting the geopolitical updates from the Trump meeting with European leaders and Ukraine yesterday. At the time, the tone was a constructive one from this. Since, that has been corroborated and expanded on by a Politico sources piece.


• Drivers since a little light with focus more on moves in JGBs and developments elsewhere.


• As it stands, USTs are at the top-end of a narrow 112-05 to 112-12 band. Given this, yields are lower with the long-end leading slightly, but the flattening is modest in nature as it stands.


• Ahead, aside from potential geopolitical updates, we keenly await the PPI report to add detail post-CPI into PCE models. As a reminder, after the CPI data, Pantheon Macroeconomics said it was consistent with a +0.23% M/M rise in the core PCE deflator. PPI aside, weekly initial jobless claims (August 9th week) are seen at 228k from 226k, while continuing claims (August 2nd week) are seen easing to 1.964mln from 1.974mln.


• Into the above, markets price a 25bps move in September and apply around a 7% chance of a larger 50bps cut. As a reminder, a shift in short-term pricing occurred yesterday after Trump added three new candidates to the Fed Chair list (total now at 11), among those candidates the likes of Jefferies’ Zervos has recently made the case for an intra-meeting cut.


• Note, Fed’s Daly (2027) speaking with the WSJ has pushed back on the notion of a 50bps move, saying that she does not see the need to catch up.

Bunds: +18 ticks, 130.01

• In-fitting with USTs, in a 129.71 to 130.06 band, lifting gradually across the morning. Specifics have been very light for the space this morning, focused on digesting the discussed geopolitical talks and particularly the reason for European optimism (since explained by Politico).


• In brief, Trump reportedly told those on Wednesday's call that he is willing to contribute US security guarantees for Ukraine with some conditions, via Politico citing sources. Conditions which have been described as essentially to get European and Ukrainian sign-off on any deal.


• The above aside, European specifics are very light with the 2nd reading of GDP data passing without impact. Docket ahead focussed on US matters, and geopols.

14 Aug 2025 - 10:05- ForexData- Source: Newsquawk