EUROPEAN FIXED UPDATE: Marked divergence as EGBs & Gilts react in full to trade updates. USTs await a barrage of Fed speak

USTs: +2 ticks, 110-28

• Essentially unchanged as newsflow since yesterday’s flurry of trade updates, which weighed on the benchmark into/after settlement, has been a little lighter. USTs at the bottom-end of a 110-25 to 110-30 band and by extension towards Thursday’s 110-24 base.


• We await anything fresh on the trade front and confirmation/rebuttal from the administration on the piece in the NY Post (and other vendors since) that China tariffs could be cut to as low as 50% next week.


• Elsewhere, the docket is dominated by Fed speak with five FOMC members (and the SOMA head) scheduled to give remarks on as many as 10 events, on top of any non-scheduled commentary we may receive. From these, it is worth highlighting that the officials are all neutral or doves, stances which may skew the tone of today’s commentary.


• As a reminder, the FOMC left rates unchanged and highlighted that risks to both sides of the mandate have increased. Powell kept his options open and didn’t add too much, maintained a data-dependent and wait-and-see approach to policy

Bunds: -63 ticks, 130.49

• Lower by 80 ticks at worst as Bunds, and EGBs broadly, react in full to Thursday’s trade developments, developments that are providing some modest support to the European risk tone this morning.


• European-specific tariff/trade updates have been light aside from commentary from German Chancellor Merz who said that Trump agreed with him in a phone call on the need to resolve the trade situation quickly.


• Holding just off today’s 130.38 WTD low, support from mid-April at 130.34 before a sizable gap to levels below 129.00 from earlier that month. Further back, support features before then at 130.27, 130.22 and 129.86 from January.


• No reaction to a Bloomberg interview with ECB’s Simkus, who outlined that a June cut is required and there is a chance of another move thereafter though it is unclear if that would take place in July or September. By comparison, markets imply around a 90% chance of a cut in June with a move thereafter not fully priced until October.


• The European docket is devoid of Tier 1 events. EGBs therefore will take impetus from the broader risk tone specifically updates from Fed officials and on the tariff/trade front; on the latter, any fresh insight into US-China or the US-UK deal will be sought to see what, if anything, from them can be applied as an indication of what the bloc should expect.

Gilts: -65 ticks, 92.21

• In-fitting with Bunds but with the pressure of an even greater magnitude as the UK benchmark had more of the trade developments to catch up on. Lower by 78 ticks at most to a 92.07 base; support at the figure and then 91.96 from late April and 91.59 from early April.


• UK 10yr yield back above 4.6% as a function of this, at its highest since mid-April but markedly shy of that month's 4.79% peak.


• Bailey this morning didn’t add much for specific policy, discussing scenario analysis and similar points in the context of the BoE’s forecasting process.


• Potentially more pertinently, Chief Economist Pill is due and will hopefully provide insight into his dissent (voted for unchanged, alongside “activist” Mann). The May statement outlined their view that holding the Bank Rate would ensure policy remains sufficiently restrictive to “weigh against stubborn inflationary pressures”.


• From Pill, we will be attentive to any insight on his view for meetings ahead, and whether the “recent developments" that cemented the view of “most” of the five who voted for 25bps to cut had influence on Pill, i.e. how far away from supporting a cut was he.

09 May 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk