EUROPEAN FIXED UPDATE: Softer following the robust macro tone, EGBs await the ECB

USTs: -10 ticks, 111-04

• A softer start to the day, with benchmarks coming under pressure early doors as the general risk tone improved after strong TSMC numbers (see equities). Prior to this, a bearish bias was already in-play as APAC shrugged off the Wall St. lead and climbed, with focus on Trump’s positive commentary on trade with Japan.


• The US-Japan progress weighed on JGBs, resulting in them briefly underperforming overnight alongside a long-dated JGB liquidity auction.


• Back to USTs, now that the week’s main scheduled risk event of Chair Powell (top-line: no rush to act, uncertainty high) has passed, we go back to waiting for any tariff/trade updates into the long-weekend. Before that, Fed’s Williams & Barr due, officials who will be scoured for any deviations from the Powell-line (i.e. Waller was markedly more dovish earlier in the week).


• Additionally, the data docket is frontloaded given the market holiday with Weekly Claims, Philly Fed, Building Permits/Housing Starts & Baker Hughes.


• Currently at a 111-02+ low and around 15 ticks from the overnight high. Support comes in at the figure before Wednesday’s 110-29 base.

Bunds: -31 ticks, 130.95

• Directionally in-fitting with the above. EGBs await the ECB where a 25bps cut is expected and entirely priced. Focus for the meeting will be on how Lagarde and Co. approach the tariff uncertainty, and the two-way impulses on growth and inflation.


• As it stands, markets imply around 80bps of further easing by end-2025 i.e. three 25bps cut (incl. April) and around a 20% chance of another. Lagarde is likely to stay away from anything too specific on guidance, particularly as this is not a forecast meeting.


• In terms of the policy rate, we wait to see how the level of restrictiveness is classified and whether the language around this is adjusted. As it stands, the statement says “Monetary policy is becoming meaningfully less restrictive…” language which could be adjusted to highlight that rates are (after the April cut) within the 1.75-2.25% neutral rate indicative interval.


• Bunds are at a 130.91 base, around 30 ticks from overnight highs and just below Wednesday’s 131.02 low. To the downside, support factors at 130.75, 130.24 and 129.92 from the three sessions prior.


• For reference, yields are firmer across the curve which is a touch steeper and while spreads are slightly wide, with BTP-Bund around 120bps, they remain shy of YTD peaks and well within parameters of the last few years. As such, while it may be a point of conversation, spreads are unlikely to necessitate any action.


• Finally, supply came from France this morning with a chunky short-dated auction being received well by the market with all b/c coming in comfortably clear of 3x. The results of this sparked some modest strength in OATs, though they remain lower on the session in-fitting with peers.

Gilts: -2 ticks, 91.93

• Tracking the above, UK specifics and the docket ahead on the lighter side as markets focus on events within Europe and the US.


• On the trade front, the only update for the UK has been a piece in The Telegraph whose sources report that the White House believes a trade deal with Britain can be finalised within around three weeks.


• Gilts began the morning on the backfoot, opening lower by a handful of ticks before slipping to a 91.73 low in-line with peers. Taking out Wednesday’s 91.78 base but, thus far at least, is yet to approach 91.43 from Tuesday.

17 Apr 2025 - 10:10- Fixed IncomeEU Research- Source: Newsquawk