EUROPEAN FIXED UPDATE: Modest pressure after a contained start has given way to a growing bullish bias, ECB ahead

JGBs: +2 ticks, 139.35

• Contained through much of the APAC session before selling off on the 30yr JGB auction. A sale that featured a softer cover than the prior and a wider price tail, pushing JGBs lower by around 20 ticks to a 139.01 base.


• However, while the auction results were softer than the prior, the outing wasn’t too bad overall and better than the 20yr and 40yr taps in recent weeks. As such, the above pressure proved short-lived and the entire move had pared within five minutes of the outing.


• Thereafter, JGBs continued to move higher. Printing a 139.44 session high in the early European morning. Action that has pushed the 10yr yield lower by around 4bps on the session and the 30yr by almost 7bps. While welcome and providing some further respite for JGBs/BoJ, the move does not remove concern around the long-end of the Japanese curve; on this, we await the mid-June BoJ for insight into future taper plans.

USTs: +2 ticks, 111-05+

• Contained through the APAC session, unreactive to the above JGB moves. As such, USTs remain towards the upper-end of Wednesday’s 110-12 to 111-07 parameters.


• Specifics light in the European morning and no catalyst behind it but US equity futures, and European peers, saw a jump just after the European cash equity open. This weighed on USTs slightly to a 111-00+ base.


• Ahead, aside from the ECB (see below), the docket is headlined by US weekly claims, Q1 unit labour costs and Fed speak from Harker (2026), Kugler (voter) and Schmid (2025) before a handful of afterhours earnings; a text release is expected from all three Fed officials.


• While USTs are largely contained, if the modest pressure that is creeping in across the morning intensifies support features at 110-18 from May 30th before a cluster between 110-11 to 110-13. On the flip side, a return to Wednesday’s best has a run of clean air until 111-25 which proved to be notable resistance at the end of April and start of May.

Bunds: +35 ticks, 131.23

• In-fitting with USTs. Has been fading from best levels throughout the morning, a slight intensification seen around the mentioned move at 08:00BST, but again, fundamentals have been limited.


• While the fade intensified at the cash equity open, a bout of pressure occurred on the morning’s German Industrial Orders for April. A series that printed much better than expected. Internals also beat as the measure ex large orders remained in positive territory M/M. However, the sectoral breakdown does point to marked pressure in pharmaceuticals and to a lesser extent machinery/equipment.


• More recently, EGBs have picked up a touch. A move that appears to have occurred as the mentioned pick up in risk sentiment fades. Additionally, the passing of supply from Spain and France, both auctions strong, appears to have given the complex a bit of room to extend, Bunds now at the upper-end of 130.79 to 131.25 parameters.


• Ahead, the docket is entirely focussed on the ECB. Today’s announcement is all but certain to see a 25bps cut to 2.00%, an outcome that is fully implied by market pricing. However, the decision may well be subject to hawkish dissent.


• Thereafter, attention turns to guidance for the remainder of 2025 as markets price in 31bps of further easing (assuming a 25bps move in June), but it is not clear when this will occur as some officials seem open to the idea of a pause in the cycle to see how the economy develops. A narrative which has garnered support from the cooler-than-expected inflation outturn in May and particularly the marked moderation in services inflation.

Gilts: +51 ticks, 92.44

• Heading into the resumption of trade, the bias for Gilts was for a contained to slightly softer open. As the benchmark closed towards highs on Wednesday and while USTs were contained Bunds had come off slightly after Industrial Orders.


• However, an announcement from the ONS that the most recent inflation headline was being revised lower by 0.1pps offset this and provided modest bullish impetus for Gilts, causing them to open higher by eight ticks and then extend a few more.


• Thereafter, as above, Gilts faded and moved a tick below the opening mark as benchmarks generally came under pressure from the pick up in risk sentiment. But, again in-fitting with peers, this has proved a little short-lived as the complex climbs into the green, taking Gilts to a 92.45 peak.


• CPI revisions aside, newsflow for the UK includes the latest BoE DMP where the CPI view was maintained and year-ahead wage growth was trimmed by 0.1pps. Elsewhere, attention on the fiscal front into next week’s spending review; more reports that Reeves intends to effectively u-turn on the winter fuel cut, but will offset the revenue loss via targeted taxation

05 Jun 2025 - 10:15- Fixed IncomeEU Research- Source: Newsquawk