EUROPEAN FIXED UPDATE: Softer given the risk tone, Gilts lag with PM Starmer pressured into PMQs

USTs: -4.5 ticks, 112-28+

• USTs are pressured today, in-fitting with global bonds, as US paper scales back some of the ADP-related upside seen in the prior session and as risk sentiment today is boosted (equity futures firmer across the board). USTs currently trade at the bottom end of a 112-27 to 113-00+ range, and with price action relatively muted so far.


• Not really much on the data docket today, but a slew of Fed speakers will take the spotlight; Fed’s Paulson, Bostic, Williams, Barr, Waller, Miran, Collins and Treasury Secretary Bessent are all on the docket.


• Markets remain focused on government shutdown developments. To recap briefly, the US passed a funding bill to end the longest-ever shutdown in the prior day – this was then voted 8-4 by the House Rules Committee to advance it to the House Floor for consideration. Expectations are for the bill to be passed (albeit subject to dissent); overall, this will keep the US government funded till at least January 30th.


• The implications of a government reopening are the end of negative growth impacts on the US economy, as well as the return of public data releases. GS and JPM both published their expectations of a data schedule, in which they view the delayed September NFP report to be published a few days after reopening.


• WSJ Fedwatcher Timiraos writes that Fed officials are increasingly divided over whether to proceed with a December rate cut, with some prioritising inflation risks while others focus on labour market weakness. The split, one of the sharpest under Chair Powell, has clouded the outlook for further policy easing despite improving data visibility.

Bunds: -16 ticks, 129.07

• Bunds lower at the start of the European day, opened at 129.19 with losses of a handful of ticks, briefly rebounded to a 129.24 peak with gains of a tick before getting dragged lower as the European risk tone continues to improve. Currently holding just off a 129.02 trough with downside of 21 ticks at most, if the move continues and the figure is breached then yesterday's 128.97 base comes into view.


• Bunds also potentially lower in sympathy with Gilts (see below) given the speculation around UK PM Starmer and associated price action as we get ever closer to the November Budget.


• For Germany, no move to Final CPI, which was unrevised, as expected. More recently, remarks from ECB's Kocher of note, as he said it would not be too surprising if the ECB holds rates steady in 2026, especially if inflation and growth projections play out as expected.


• Ahead, we have dual-tranche supply from Germany, the 2046 line has generally been well received recently despite pressure in peers on the curve, pressure the 2056 line has succumbed to. Thereafter, ECB's Schnabel, de Guindos and Buch due, but a text is only expected from the latter

OATs: -4 ticks, 122.65

• This afternoon, the French National Assembly is to hold the first reading on the Social Security articles, with reference to the suspension of pension reform, set to occur around 14:00GMT. Politico writes that the articles should be adopted.


• Thereafter, attention turns to the remaining time to debate the broader bill as part of its first reading. Despite the 20-day initial period expiring today, there are still several key components to discuss. Politico's sources believe the most likely outcome is that not all of the amendments will clear in time and as such no formal vote will occur. This sends the bill to the Senate, including the amendments that have passed in time, an outcome seen as favourable to PM Lecornu.


• Into this, OATS trade better than peers with the mood-music relatively constructive for PM Lecornu at this particular stage. Narrowing the OAT-Bund 10yr yield spread down to 74bps, the lowest since August.

Gilts: -39 ticks, 93.48

• Gilts are underperforming vs peers, scaling back some of jobs-related upside seen in the prior session, which saw odds of a December BoE rate cut boosted. Moreover, political uncertainty in the region has crept back into the markets following a report in The Guardian.


• On that, in the prior session, The Guardian reported that Downing Street were fearing that some of the PM’s closest viewed PM Starmer as “vulnerable” to leadership change in the wake of the Budget. More recently, Wes Streeting has come out to clarify his support for Starmer, adding that he has not had talks with anyone, regarding any attempts to oust his leader.


• Obviously today's PMQs from around 12:00GMT onward will draw significant attention and both GBP and Gilt trades will watch for any signs of a drop in support for Starmer as we count down to the Budget; equally, a particularly strong performance could offset some of the pressure seen in Gilts this morning.


• Gilts gapped lower at the open by 18 ticks, and then continued to gradually dip as the morning progressed; range for the day is 93.46 to 93.69

12 Nov 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk