EUROPEAN FIXED UPDATE: Two-way action for JGBs, Gilts gap higher on retail sales but fade

JGBs: -2 ticks, 139.41

• Ultimately, contained. However, the morning has seen marked action in a 139.32 to 139.50 band as draft reporting and commentary emerges from the Ministry of Finance Meeting.


• In brief, Bloomberg citing a draft reported that Japan intends to cut super long issuance by JPY 3.2tln, by cutting JPY 100bln from 30yr and 40yr auctions and 200bln from the 20y; consensus was for 100bln in each tenor.


• As such, JGBs jumped higher to the above peak. For yields, the move was initially across the board but with most of it skewed towards the long end given the focus there.


• Thereafter, as the full draft was reported and particularly on the nuance around increasing short-end issuance to compensate (something that had been touted as a possibility) the Japanese yield curve is experiencing some modest flattening action, as short-end yields retrace the initial move.

USTs: +1 ticks, 110-24

• Cash returns from Thursday’s holiday yields marginally firmer across the curve though action is limited thus far.


• USTs were contained in a narrow range overnight, aside from the two-week negotiation assessment period outlined by President Trump on Thursday.


• Moved a little higher this morning alongside Bunds, driven by Gilts (see below), though the move was limited in nature. Benchmark peaked at 111-00+ and has since been gradually waning, a move that has picked up slightly in intensity into the European morning; however, the magnitude of action and range on the day both remain very limited.


• Pressure has ramped up as the morning progresses and is possibly a function of the benchmark digesting and fully assessing the positive developments on the geopolitical front from the US, removing the haven demand. Though, as above, the move is limited and USTs remain above Thursday’s 110-22+ base.

Bunds: -2 ticks, 130.93

• Modestly firmer for much of the morning. Lifted by around 30 ticks on the UK retail metrics this morning (see Gilts). Peaked at a 131.33 high but has since been drifting and now finds itself back marginally below the figure, and by extension in proximity to the earlier 130.88 low; now essentially unchanged on the session.


• On the pressure, the move is potentially a function of the recent geopolitical rhetoric from Iran. With the Foreign Minister limiting the topics for the E3-Iran meeting to just the nuclear deal, and other officials maintaining punchy rhetoric against the US; updates which are potentially lifting yields a touch, despite the two-week assessment period Trump has unveiled - though, equally, the latter point may still be driving EGBs lower given their haven status.


• Specifics for the bloc light so far. Alongside the UK data, German producer prices hit, broadly as expected. That aside, the main update has been the EU agreeing to lift the EIB’s lending ceiling to EUR 100bln for the year, this dynamic is seemingly supporting banking names (see equities) but with limited fixed followthrough at this stage.


• Docket ahead light, awaiting remarks from an ongoing ECB conference. However, the macro dial is firmly looking for developments in the Middle East.

Gilts: -2 ticks, 92.72

• Gapped higher by 18 ticks, following an abysmal set of retail data. The series saw sales volumes fall across the board, the most pronounced move was in food and while that is somewhat skewed by an unfavourable prior, the series is nonetheless dire.


• Metrics sparked a dovish shift to BoE pricing, tilting the dial slightly more firmly towards a 25bps cut in August, though the next priced move remains firmly for September.


• While bid initially, and to a 93.05 peak, the move proved somewhat short-lived as Gilts also digested the latest PSNB data.


• A series that featured the highest May borrowing on record, ex-COVID; metrics that offset the dovish impulse from Retail Sales and while the increasing odds of easing is welcome for Chancellor Reeves, the larger borrowing figure is not and increases the fiscal pressure on the Chancellor and the odds of tax hikes and/or a change to fiscal rules in the Autumn.


• Overall, Gilts now near-enough flat and at the lower-end of the day’s limited 92.83 to 93.05 band; moving in fitting with peers, as discussed above.

20 Jun 2025 - 10:10- ForexEU Research- Source: Newsquawk