EUROPEAN FIXED UPDATE: Propped up by a deterioration in sentiment, offsetting initial Bund pressure on fiscal-related developments

USTs: +12 ticks, 110-31

• Picked up at the reopening of trade, given the pressure in US equity futures and as the benchmark acknowledged the soft Chinese inflation data on the weekend. The risk-off tone has intensified further with USTs outperforming and at a 111-03 peak, resistance at 111-11+ and 111-15 from last week.


• Market focus is firmly on tariffs/trade with new measures set to come into play on metals on Wednesday and the prospect of reciprocal tariffs being implemented imminently. Furthermore, President Trump’s sights seem to have turned back to the EU, with him labelling the bloc as a terrible abuser.


• For the US, we are now in the blackout period into the 19th March FOMC. Into this, markets price in less than 1bps of easing with the next 25bps cut not priced until the June gathering. On that, Morgan Stanley has updated its Fed call and now look for a 25bps cut in June, as they expect disinflation until around May, but thereafter look for a pause until March 2026 due to an expected reacceleration in inflation. Their 2.50-2.75% terminal forecast is unchanged.


• Finally, focus is also on fiscal matters as the Friday deadline to pass a funding bill to avoid a federal shutdown fast approaches. The House Republicans released their CR on the weekend and following this Punchbowl writes that it does not feel as if a shutdown will occur. Trump himself has called for all Republicans to approve the bill, posting “no dissent” on Truth

Bunds: +13 ticks, 127.79

• Focus remains on German fiscal reform. In the outgoing Bundestag, which has 733 seats, 489 are needed to hit the ⅔ threshold for constitutional reform. CDU/CSU and SPD have 403 seats and as such need the support of the Greens, 117 seats, to hit the threshold.


• Given this, incoming Chancellor Merz is to meet with the Greens leaders in order to convince them to back his constitutional amendments, as such the Greens will demand their own points which Politico reports are: ensure the special fund is for additional investment only, debt brake adjustment also applies to infrastructure and climate projects are included within these. Greens are due to give a press briefing around midday with Merz also scheduled thereafter; briefings which appear to be scheduled before the CDU-Green meeting occurs.


• Reform aside, reports indicate that coalition talks for the new Bundestag are progressing well. Elsewhere, for the bloc more broadly, EU Commission President von der Leyen said that “nothing” is off the table for security, including defence eurobonds; the Eurogroup is set to meet today to discuss potential funding measures.


• All of the above weighed on Bunds to a 127.21 low overnight, just above Friday’s 127.18 base and the contract low from last week at 126.64 below. However, fixed benchmarks generally have been lifting off worst through the European morning as the risk tone deteriorates, with a more concerted bounce into the green occurring alongside the European cash equity open and the start of US pre-market trade (reminder, London-NY time gap is currently four hours).


• Specifically, Bunds lifted from the mentioned low to a 127.97 peak and now look to near-term resistance at 128.00 and 128.29 from late last week.

Gilts: +18 ticks, 92.28

• Trading in tandem with the above as the risk tone soured throughout the European morning. Gapped higher by 22 ticks at the open and has since risen almost the same amount again to a 92.49 peak. A high which surpasses the 92.41 top from last Wednesday but has stopped just shy of Friday’s 92.63 best.


• Docket for the UK is light for today and much of the week until GDP on Friday. As such, focus for the benchmark remains firmly on the tariff/trade front as we continue to wait to see what measures the US will impose on other nations and what retaliation this will provoke.


• Updates which are also of note for the upcoming OBR forecasts given the yield implications of tariff/trade action; though, it is worth noting that the OBR’s collection window has likely already closed.

10 Mar 2025 - 09:55- ForexUS Research- Source: Newsquawk