EUROPEAN FIXED UPDATE: Lacklustre trade in quiet newsflow as USTs eye 7yr supply and data

USTs: +2 ticks, 112-15

• USTs are firmer by a handful of ticks, with a slight bid caught soon after the European equity cash open, but seemingly without a fresh driver. Currently trading towards the upper end of a 112-12 to 112-17+ range. Peak for the day marks the weekly high, now currently trading at levels not seen since 1st May 2025 (112-23 was the best from that day).


• No real progress on the Trump-Cook situation so far; it was reported on Wednesday that the Fed Governor would file a lawsuit against the POTUS on the day, but this has yet to materialise. Markets continue to price in the dovish implications of a Cook removal, with the US 2y currently trading near recent lows at 3.61%.


• On the Fed Chair replacement, US Treasury Secretary Bessent said that there are 11 strong Fed chair candidates, while he added they will start interviews after Labor Day and present a shortlist to President Trump. In terms of trade developments, White House trade advisor Navarro said India can get 25% off tariffs if it stops buying Russian oil. Elsewhere, Japan's top trade negotiator Akazawa cancelled his US trip and eyes a visit as early as next week.


• On the data front, markets will have US GDP 2nd Estimate (Q2), PCE (Q2) and Jobless Claims to digest – though more focus will be on Friday’s monthly PCE tomorrow. As for supply, a 7yr auction is on the docket, which follows on from a strong 2yr on Tuesday but a mixed 5yr outing on Wednesday – on the latter, it drew a lower-than-prior high yield, higher b/c but tail was not as strong as the six-month average. Elsewhere, Fed's Waller is set to speak on the economy later tonight.

Bunds: -2 ticks, 129.77

• Bunds are slightly lower in what has been a very choppy trade so far. Caught a bid soon after the European cash open, which saw Bunds make a fresh WTD high at 129.90; next level to the upside includes the round 130.00 mark and then 130.06 (Aug 14th high).


• Really, nothing is driving things for Europe at the moment. In geopols, it was reported that a Russian attack had hit the European Union’s mission HQ in Kyiv – von der Leyen confirmed that the delegation staff are safe. On ECB speak, Rehn said EZ growth is more resilient than expected – comments which can be backed up by the latest car registrations, which rose 7.4% Y/Y in the EU. Not real move seen on EZ Consumer Confidence data, which printed in-line.


• In terms of French politics, not really any updates since PM Bayrou’s decision to call a confidence vote – recent polls have suggested that the majority of French people want parliament dissolved and want snap elections. On Wednesday, German-French spreads widened to as high as 81.89 – approaching the high of this year at 84.5bps. Today, yields are tightening a touch back down below 80.00. Most recently, the French Finance Minister said the public deficit will be on target in 2025 and 2026, and the budget is almost ready. Adding that the budget we are preparing does not have a surtax on big companies.

Gilts: +8 ticks, 90.69

• Gilts outperform today, gapped higher at the open, by around 20 ticks before paring most of that move. Markets have an interesting report via The Times to digest; the UK Treasury is said to be considering a tax hike on landlords by imposing national insurance on rental income ahead of Chancellor Reeves’ autumn budget. This report has helped to lift Gilts, but also as UK paper plays catch-up to some of the strength seen in the prior session in USTs. Gilts trade in a 90.68 to 90.83 range.


• Over the past few days, UK paper have been trading a little lacklustre as markets now look ahead to the Autumn Budget - broader political commentary has been very downbeat on Chancellor Reeves' plans. On Wednesday, it was reported that the Chancellor will seek help from Torsten Bell - the Telegraph wrote today his "fingerprints are all over Britain's debt disaster". Shadow Chancellor Stride said the appointment is suggestive of “higher taxes, more borrowing, and punishing success”.


• A recent FT article suggested that UK PM Starmer is planning a cabinet shake-up and that is expected to be a new economic advisor ahead of autumn budget.

28 Aug 2025 - 10:20- ForexEU Research- Source: Newsquawk