EUROPEAN FIXED UPDATE: Ultimately firmer after initially slipping on the EU-US deal

Bunds: +39 ticks, 129.71

• Opened lower by 10 ticks and then slipped the same amount again to a 129.12 trough, with the benchmark remaining around this point throughout the night and into the first part of the European morning.


• In brief, the deal saw a 15% tariff for the vast majority of exports alongside various defence and spending commitments. A deal that has been welcomed as much better than the August 1st scenario, particularly when likely countermeasures and possible further tit-for-tat escalation is accounted for.


• However, the deal is not as good as the 10% general level the UK attained, a point highlighted by officials from France and Hungary among others. As it stands, we are awaiting any readout from the Coreper meeting (began at 07:30BST) and then any indication on how long it will take to formally write the deal and insight into potential sticking points from the commitments member nations and firms will need to make.


• The above softer start for fixed income - given the positive risk tone - has proved fleeting. Across the European morning EGBs, and fixed generally, have been lifting from lows, back into the green with Bunds now firmer and just off a 129.70 high with gains of just under 40 ticks at best.


• A turnaround that has occurred despite a lack of fresh specific driver but came alongside a broader deterioration in the risk tone with stocks off best, activity FX hit, USD picking up. More specifically, the move may be a function of the benchmark paring some of the hawkishness seen post-ECB and the view that the weekend’s update could pave the way to looser policy.


• As while the trade deal is a positive vs August 1st, it is still an imposition of tariffs at a high level (above the revised 10% from April) and leaves a lot of uncertainty (not least the fact that Trump could pivot and revert to higher levels at any point) for the bloc and policy in the near term. Particularly as the written deal needs to be signed off by the US, European Commission and ideally all of the EU27 member nations.


• In short, the deal could pave the way to more expansionary ECB policy given the lower growth implications of the deal vs a 10% outcome. However, we await comment from ECB officials to see if the implications of the update would be classified as more than a “minor deviation” from target, something Lagarde said the ECB would not be “moved away by”.


• On the firmer fixed environment and associated lower yield action, Rabobank makes the point that diminished trade uncertainty is potentially causing a moderation in term premia.


• Note, while the benchmark is now firmer, Bunds remain well within the confines of last week. If the move continues, upside features at 130.00, 130.63 and 130.76 from last Thursday, Wednesday and Tuesday, respectively.

USTs: +2 ticks, 111-01

• Directionally, following EGBs but with magnitudes much more contained thus far. As while USTs are digesting the above EU deal and associated market moves, they also await the US-China meeting in Stockholm today, supply and treasury refinancing estimates ahead of Wednesday’s refunding.


• Began the week on the back foot, to a 110-26 trough with downside of around five ticks at most. However, alongside EGBs, this has pared across the European morning with USTs now in the green by a handful of ticks to a 111-03 peak.


• However, the upside is much more minimal with overall action contained vs EGBs. A function of the mentioned risk events.


• In brief, the US and China are meeting today and tomorrow in Stockholm. Talks are expected to start in the “afternoon” local time; no other guidance regarding the schedule has been provided yet. From the meeting, sides are expected to agree on a 90-day extension of the tariff suspension, according to SCMP.


• Supply is early this week on account of Wednesday’s FOMC, with 2yr and 5yr notes kicking the week off before financing estimates ahead of refunding. Morgan Stanley does not expect the Treasury to increase coupon sizes at all this year, and have pushed out their call for the next coupon increase to February 2027 (prev. May 2026).


• In short, while USTs are following the EGB-led fixed moves action is more contained with a busy US agenda today and this week, with numerous key data points also due, e.g. PCE and NFP, alongside the aforementioned events.

Gilts: +27 ticks, 91.74

• Firmer, in-fitting with EGBs as Gilts also have to acknowledge/catch up to the pairing of downside seen late doors on Friday in Bunds. Given this, and as the upward move in peers was already well underway by the time Gilts opened, the benchmark began the day firmer by just over 10 ticks before extending to a 91.85 peak with gains of around 25 ticks at most.


• Alongside all of the above, UK participants await the Starmer-Trump meeting which is scheduled to get underway just after midday UK time. Trump is due to hold some initial media remarks, Starmer will be there for them but it is unclear if he will partake. Thereafter, the leaders have a dinner scheduled.


• Trump has described the meeting as “more of a celebration than a workout” as “nothing” is missing from a UK perspective. Starmer has been pushing for better deals on steel and pharma., though Playbook reports that a steel breakthrough looks remote while Trump described pharmaceuticals as “very special” to him.

28 Jul 2025 - 10:00- ForexEU Research- Source: Newsquawk