EUROPEAN FIXED UPDATE: Underpinned by the Japanese election, Fed in blackout

USTs: +10 ticks, 111-02

• A firmer start to the week with USTs already eclipsing last week’s 110-30 peak. Thus far, the benchmark has hit a 111-02 high with gains of around 10 ticks on the session.


• Upside that occurs despite a lack of significant specific newsflow for the US, awaiting any fresh tariff updates as monetary ones are set to slow for the time being as the Fed is now in the blackout period ahead of July 30th. Note, Fed’s Powell and Bowman are both due to speak this week, but given the blackout is in-force, the remarks will not cover monetary policy.


• Strength potentially a function of the WSJ reporting that Treasury Secretary Bessent advised President Trump not to fire Fed Chair Powell; a view that is corroborated by the current yield curve flattening (recall, last week’s reports of a letter being drafted steepened the yield curve). Thereafter, Trump labelled the article as “untruthful”, but his issue with the piece was the journal reporting that Bessent explained to Trump the negative economic impact of firing Powell, rather than refuting the actual article.


• Elsewhere, strength for the fixed complex generally is possibly being derived from the Japanese election; reminder, Japanese equities and bonds closed until Tuesday. In brief, the ruling coalition held onto 47 of their seats, falling short of the 50 required to retain an Upper House majority. Since then, PM Ishiba has committed to remaining in his role and leading the minority coalition. Strength for the complex, and likely to be seen in JGBs on Tuesday, as a result of Ishiba remaining in place which avoids the worst-case scenario in terms of political instability and the narrow margin of loss (some pre-election polls looked for the coalition to get just a low-30 number of seats).


• Ishiba has already mentioned that he agrees with some opposition views that payouts were needed to cushion the blow of rising prices to households. Ahead, we now await comments from the opposition parties on whether they are willing to support Ishiba or not and what concessions they would want to receive in exchange. Elsewhere, insight from the BoJ into whether the fresh political uncertainty the minority government has created, and policy concessions they may now have to give (likely fiscally expansive) have any impact on the normalisation process.

Bunds: +51 ticks, 130.08

• Bid, in-fitting with USTs. As above, specific newsflow a little light and the bulk of the morning’s move potentially a function of the Japanese election. Peaked at 130.14 with gains of just under 60 ticks at best, currently holding off highs by clear of the 130.00 mark. If the move continues, resistance features at 130.62 and 130.76 from the first two weeks of July.


• In terms of European specifics, Bloomberg reported that EU envoys are set to meet as soon as this week to formalise plans for retaliation measures under a no-deal outcome with the US.


• Elsewhere, the ECB’s latest SAFE showed a drop in one year inflation expectations to 2.5% (prev. 2.9%), while the 3yr and 5yr views were maintained. No immediate reaction to the survey’s release, though the session’s 130.14 peak occurred just under 10 minutes later.


• That aside, specifics for the bloc light as we count down to the ECB on Thursday. In brief, no move expected with markets implying just 2bps of easing. From the statement/press conference, we look for any insight into the timing of the next move with markets currently not pricing a cut until December (-25bps implied).

Gilts: +38 ticks, 91.49

• In-fitting with the above. At a 91.52 peak with gains in excess of 40 ticks at best.


• Above factors aside, weekend newsflow has been light largely focussed on the Afghanistan data leak and increasing talk of a shadow cabinet reshuffle.


• One piece of notable newsflow over the weekend came via The Telegraph, who report that the government is looking at the creation of a “crypto storage and realisation framework” to manage and potentially sell seized assets. While it is unclear how much the government would itself net from such sales, confiscated Bitcoins held by the UK government are reportedly worth in excess of GBP 5bln and thus could offset a portion of Reeves’ fiscal requirement.


• However, on the flip side, The Times reports that Reeves is set to reject pressure from Labour MPs to implement a wealth tax, following calls for a 2% tax on assets in excess of GBP 10mln; a proposal cabinet ministers reportedly described as a “non-starter”.

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