EUROPEAN FIXED UPDATE: JGBs slump on trade updates, peers elsewhere lower given the risk tone and into supply

JGBs: -90 ticks, 137.61

• An eventful session for Japan. Firstly, US President Trump announced that a trade deal has been agreed and will result in a 15% tariff level (full details on the feed). An update that supported the JPY and weighed on JGBs with yields picking up across the Japanese curve with the short-end leading and the 10yr making a marginal new post-2008 peak at 1.601%; surpassing 1.60% from the week before the Upper House election.


• Amidst this, reports emerged from various outlets that PM Ishiba was, despite his initial post-election commitment, planning to announce his resignation in either July or August and take personal responsibility for the Upper House result.


• The trade update weighed on JGBs from 138.50 to 138.00 at the resumption of trade before slipping further to a 137.56 low in the hours after as the reports around Ishiba circulated. Thereafter, a slight pickup from lows occurred.


• However, this proved short lived with JGBs notching a fresh 137.54 trough after a 40yr auction (reminder, long-end is under heightened focus). An outing that saw the weakest demand ratio since 2011.


• Most recently, Ishbia himself has pushed back against reporting of his looming resignation, remarking that there is no truth to it and the matter was not discussed in a meeting with LDP officials. JGBs lifted around 10 ticks off the above low by that pushback, but remain markedly lower across the Japanese session as a whole.


• For the BoJ, the above has sparked a hawkish reaction with 20bps of tightening implied by end-2025 from c. 14bps yesterday. From the BoJ, Deputy Uchida described the trade deal as being roughly in-line with assumptions from May’s report and, as it stands, accommodative policy is required.

USTs: -9 ticks, 111-04

• In the red, holding at a 111-04 low with downside just shy of 10 ticks at most. Newsflow has been focused almost entirely on trade as Trump announced deals with Japan, Indonesia and the Philippines. Furthermore, China’s Commerce Ministry has confirmed talks with the US next week in Sweden.


• Pressure seen across the fixed income benchmarks, with JGBs leading as above, amid the positive risk tone and prospect for more trade updates today (see Bunds).


• For the US specifically, the docket ahead includes Existing Home Sales before a 20yr tap. That aside, focus firmly on earnings with Alphabet and Tesla headlining after-hours.


• The mentioned trough holds just before the 111-00 mark, if breached the 21st July base is next at 110-24 before 110-19 from July 18th and then a double-bottom at 110-08+.

Bunds: -38 ticks, 130.36

• Under pressure, to a slightly larger extent than USTs. Downside that is perhaps ahead of EUR 5bln 2035 Bund tap into Thursday’s ECB (no move expected, focus on commentary/guidance) and the language from Trump overnight.


• On the latter point, Trump said Europe is coming to Washington for trade talks on Wednesday. Separately, but still on trade, bearishness also stemming from China’s Commerce Minister holding a call with the EU Trade Representative, described as “candid and in-depth”.


• China's Commerce Minister held a video call with the EU's trade chief and had candid and in-depth discussions, while they discussed China and EU trade cooperation and issues, as well as EU sanctions on Chinese firms and China lodged solemn representations over sanctions. A call that comes ahead of the China-EU meeting in Beijing on Thursday; though, expectations heading into it are limited.


• Altogether, Bunds down to a 130.33 low with downside of c. 50 ticks at most but yet to test Tuesday’s 130.24 base or by extension the WTD low at 129.73 from Monday.

Gilts: -44 ticks, 91.68

• An echo of the above with downside of around 50 ticks at most. Specifics for the UK have been light with the benchmark largely just following the risk tone.


• While in the red, Gilts remain above Tuesday’s 91.46 base and by extension the 91.29 WTD trough from Monday. Bearish action ahead of a GBP 3bln 2040 Gilt auction due. The last tap of this line sparked downside on the results, which featured a particularly hefty price tail.


• Results of this were strong, with a b/c of 3.69x and a more typical tail, sparking upside in Gilts of around 10 ticks from the 91.58 low.

23 Jul 2025 - 10:15- ForexEU Research- Source: Newsquawk