EUROPEAN FIXED UPDATE: Underpinned by the risk-off tone, though off best given the latest China sources

USTs: +4 ticks, 111-05

• Bolstered in-fitting with peers and deriving some haven demand from the NVIDIA & ASML updates. However, USTs are failing to benefit to the same degree as core peers across the pond, potentially after USTs saw late-doors strength following more Treasury Official commentary on Tuesday and perhaps as the benchmark is yet to entirely reclaim its status as the haven of choice.


• Hit a 111-09+ peak and marginal WTD best, however, the benchmark remained shy of levels from late last week with the docket ahead packed, including Retail Sales (should be strong given tariff frontloading) and Chair Powell (text and Q&A expected).


• Powell is likely to reiterate that Trump tariffs could lead to higher inflation and slower growth, maintaining that the Fed is not rushing to cut rates. He is also expected to emphasise that the current policy stance remains appropriately restrictive, a slight shift from his previous “clearly” restrictive language.


• Most recently, USTs were knocked by around 10 ticks by a Bloomberg source report that China is open to trade talks with the US, but that they have a number of pre-conditions to this; full details on the feed, but in short while this has sparked significantly price action and a surge in volumes the overall risk-off narrative remains the magnitude of it has eased markedly.


• Note, the US released a Fact Sheet overnight (~11hrs before the above sources) which seems to suggest that China now faces as much as a 245% tariff on imports to the US following retaliatory actions; we await clarity on this 245% figure.

Bunds: +47 ticks, 131.33

• Began bid, as the risk tone has been chipped away by updates from NVIDIA & ASML. Developments specifically for the bloc have been a little light, final inflation data from Italy subject to a modest revision lower but spurred no reaction.


• Focus for the region is on Thursday’s ECB, where a 25bps cut is fully priced and the upside in benchmarks this morning means around a 5% chance of a 50bps move is implied.


• Rates aside, the ECB will also be focused on the performance of peripheries vs core counterparts, as spreads have widened over the last few weeks with BTP-Bund incrementally surpassing 135bps last week. Since, it has narrowed a touch but remains at a relatively wide 120bps.


• While the move is notable, the spreads remain well within levels of the last few years with the peaks of the last two years at 171.8bps and 215.6bps respectively. The widening may merit some conversation, but it is unlikely to spark any intervention at this point.


• Most recently, the tone has been lifted by the latest trade update concerning China (discussed above), a report which lifted market sentiment and caused Bunds to trim from best levels by around 30 ticks.


• Prior to this, Bunds were at a 131.49 peak, just shy of yesterday’s 131.57 best with yields lower across the curve and action fairly broad-based. In the near-term, dual-tranche Bund supply is scheduled which should go well, however, the pressure seen after Tuesday’s tepid Bobl outing means the taps may draw greater scrutiny than usual.

Gilts: +41 ticks, 92.05

• Initially firmer start to the session given the risk-off tone after NVIDIA’s update and exacerbated by ASML. Further bullish impetus for Gilts came from UK CPI. Altogether, this caused the benchmark to gap higher by 43 ticks and then extend 25 more to a 92.32 peak.


• The CPI series was cooler-than-expected overall and will be welcomed by those on Threadneedle St. and has seen the odds of a 25bps cut in May tick up to near-enough fully priced vs a c. 80% chance pre-release. However, it is worth caveating that the pricing backdrop has changed significantly in recent days/weeks globally, and as such the series may already be stale.


• Most recently, as outlined above, the risk tone has seen a marked recovery on the China-trade report. A recovery which weighed on Gilts back to the 92.00 mark though the benchmark remains well into the green and is the clear outperformer across the core space.


• Ahead, the UK docket is sparse and as such impetus for Gilts will come via the broader risk tone, trade/tariff updates and anything from the sessions scheduled main events, of which Chair Powell is the highlight.

16 Apr 2025 - 10:10- ForexEU Research- Source: Newsquawk