EUROPEAN FIXED UPDATE: Two-way action for JGBs; USTs just about firmer while EGBs & Gilts reside in the red

JGBs: +20 ticks, 138.90

• Fell overnight on the BoJ which was largely as expected, with rates left unchanged and the taper pace trimmed to JPY 200bln a quarter (currently JPY 400bln) from April 2026 onwards. The hawkish impulse came from Tamura’s dissent, who favoured maintaining the old pace of tapering until end-Q1 2027.


• The breakdown of the BoJ’s JGB purchase schedule for July vs June showed a reduction in the monthly purchase size to JPY 3.7tln (prev. 4.1tln), a reduction that is contained to JGBs with between 1yr and 10yrs of residual maturity. A nuance that illustrates the flexibility both the statement and Ueda outlined and a heightened focus on stability in the longer maturity portion of the market.


• Slipped from 138.91 when trade resumed after the lunch break, BoJ hit one minute later, sending JGBs to 138.69 in a knee-jerk move and then to a 138.49 low in the early European morning before recovering off worst and back to the knee-jerk low into Ueda.


• Given the hawkish impulse from Tamura’s dissent, Japanese yields were higher across the curve. However, the flexibility in purchases and above breakdown of the schedule for July seemingly limited the upward move in Japan’s long-end yields, as the BoJ would have undoubtedly intended; 10yr yield higher by 4bps at most, 30yr by 2.9bps.


• Reminder, the MoF is meeting with primary dealers on Friday to discuss issuance plans and the super-long part of the curve.


• Thereafter, Ueda provided some dovish language in his press conference, see board for a recap, commentary weighed on the JPY and lifted JGBs back to pre-policy announcement levels around 138.90.

USTs: +4 ticks, 110-19

• Firmer, but only modestly so. In a relatively thin 110-15+ to 110-23 band. Overnight, the 20yr auction was better than the prior, but roughly in-line with the six auction average. More recently, USTs saw some modest movements alongside JGBs. Overall, the benchmark is awaiting US data and clarity on a number of moving parts.


• Firstly, US data. The docket features Retail Sales, M/M exp. -0.7% (prev. 0.1%); Export and Import Prices (factors into PCE, due June 27th); Industrial Production, M/M exp. 0.1% (prev. 0.0%).


• Ahead of Retail Sales, BofA wrote that May's weakness in spending partly reflects declining gasoline spending, some payback from earlier tariff-related 'buying ahead', and the impact of poor weather.


• Data aside, the main thing desks are looking for clarity on is President Trump’s sudden departure from the G7 and his return to the White House. Initially thought/reported to be due to ceasefire efforts in the Middle East. However, Trump himself said it's “nothing to do” with a ceasefire, and is “much bigger than that”. Since, CBS’ Jacobs reports Trump said he wants a “real end” to the conflict and Iran “giving up entirely on nukes”.


• If any of the above points spark a bullish move, resistance seen at 110-26 from Monday, before 111-06 and 111-13 from last Thursday and friday. On the flip side, a move lower encounters support at 110-10+ from Monday, 110-02 on June 10th and then 109-28 and 109-29 from the 11th and 9th respectively.

Bunds: -29 ticks, 130.56

• Also contained, but with a modest bearish bias in play. A bias which potentially comes ahead of supply, though the German outing today is small and size and thus shouldn’t be exerting too much influence.


• While softer, it is worth making the point that action has been contained to a relatively thin c. 30 tick range and choppy within that as the benchmark struggles for direction amid a lack of specific catalysts.


• Initially saw some pressure on the lack of EU-US progress at the G7. However, the subsequent meeting between Trump and Commision President von der Leyen, and then von der Leyen posting that on trade they “instructed the teams to accelerate their work to strike a good and fair deal.”, offset some pressure.


• Overall though, the bias is bearish and potentially driven once again by the influence of energy on inflation expectations, as Dutch TTF remains bid and within reach of Monday’s 11-week high at EUR 39.61/MWh.


• No move to ZEW data for Germany and the EZ. Metrics came in better than expected, upside continues to be driven by announced fiscal support and ECB policy easing.


• Supply aside, the European docket ahead is light. Thereafter, impetus will likely be drawn from any trade progress and the Tier 1 events outlined in USTs.

Gilts: -37 ticks, 92.43

• Much the same as Bunds, but with the benchmark under slightly more pressure. But, as above, today’s range is limited and Gilts have been a little choppy within it, though the bias is more bearish than peers.


• A direction potentially exacerbated by the morning’s supply as the DMO is set to sell GBP 4.5bln 4.375% 2030 Gilt. The auction was well received, featuring a better b/c and smaller tails than the prior, but failed to spur any upside.


• Otherwise, the bias is seemingly a function of Gilts catching up to some of the late door pressure seen in USTs. A view illustrated by the benchmark gapping lower by 17 ticks, an opening level that is just a tick below the session’s peak.


• As with EGBs, the UK docket is sparse and so we look to the discussed macro risk events for impetus.

17 Jun 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk