EUROPEAN FIXED UPDATE: US House debate on Trump's tax bill is underway, voting could begin around 10:15BST

USTs: +3+ ticks, 109-19

• Focus firmly on the fiscal front. Overnight, the House Rules Committee passed President Trump’s tax/spending bill. Thereafter, the broader floor voted to open debate on the tax bill, a debate process that lasts for around two hours (started approx. 08:00BST) and is followed by a vote on the bill.


• Reminder, if it passes then the bill will move to various Senate committees before being debated and voted on by the Senate floor, the process will likely take several weeks, after this, Trump has the final sign off.


• Progress on the bill is bearish for USTs as it will increase the US’ debt level, a figure which has been increasing and was the driver behind the Moody’s downgrade last week. However, the benchmark is slightly firmer as it stands, bouncing back from the sell off seen after Wednesday's poor 20yr, results impacted USTs and the risk tone.


• In brief, the tap saw a WI tail in excess of 1bps and a soft b/c, beneath the six-auction average, the accompanying internal metrics were not quite as bad but the tail and cover drove the reaction.


• As such, USTs are firmer by a couple of ticks but remain within 10 of Wednesday’s auction-induced 109-13+ trough; indeed, the benchmark briefly dipped below this by half a tick overnight to a new WTD base.


• Ahead, aside from fiscal updates, we have weekly jobless claims (continuing matches the BLS window), flash PMIs, 2-, 5- & 7-yr note announcements and Fed’s Barkin and Williams.

Bunds: -17 ticks, 129.72

• A softer start to the day, but while in the red Bunds are at the upper-end of a 129.49-91 band, just above Wednesday’s 129.89 close.


• Bund have been gradually making their way off lows throughout the morning, edging higher slowly into the day’s data points which have featured generally weak Flash PMIs, with the expectation of Manufacturing where tariff-mitigation measures appear to have provided some support.


• Printed the 129.91 high on the German Flash figure, within the series all three components miss expectations and both Composite & Services land outside the forecast range.


• Thereafter, the EZ figures also saw Composite & Services land outside the forecast range, while Manufacturing scraped a slight beat; aided by tariff mitigation measures and some optimism around the impact of German fiscal expansion. Alongside that, Germany’s Ifo featured a strong Expectations figure and the first tentative signs of a recovery.


• No significant move to the 09:00BST data points, but the positive points of the German Ifo, the PMIs Manufacturing component and commentary that wages are likely driving higher input costs in the bloc have caused Bunds to ease back a little further from yesterday’s close, and by extension are currently holding around 20 ticks from the session’s high.


• Supply this morning featured slightly softer Spanish taps than usual, but not sufficiently so to spark a reaction. French results are due around the time of publication; if well received, this may allow EGBs to attempt to break back into the green, with OATs weighed down into the results.


• Ahead, ECB Minutes though as usual these will be deemed stale. More pertinently, the Minutes are followed by de Guindos, Elderson and Escriva at various points throughout the day. However, we either do not expect a text release or, if we are guided to one, the topic is on supervision.


• As a side note, Sweden’s Debt Office is to add in a “few” auctions and introduce new bonds more quickly, notably an additional foreign currency bond, in order to meet a growing domestic borrowing requirement.

Gilts: -19 ticks, 90.40

• Softer, trading slightly weaker than EGBs throughout the morning as has been the case at several points over the last few weeks but with today’s underperformance likely a function of Gilts reacting to Wednesday’s US auction and borrowing data this morning.


• PSNB data this morning came in well above expectations and the prior, though that was subject to a downward revision, in another unwelcome series for Chancellor Reeves after the hotter-than-expected inflation print earlier this week.


• Digesting this, and the referenced US auction, Gilts opened lower by 18 ticks and then slipped another 13 to a 90.29 trough in short order.


• A very modest upward move to UK PMIs. A series which featured strength in the Services sector, bringing it back into expansionary territory while Manufacturing fell deeper into contraction.


• Internal commentary is of note, and welcome by the BoE, as S&P observed “inflationary pressures moderating considerably from the spike seen in April”, which alongside signs of “ faltering economic growth and job losses”, keeps the door open for further BoE easing ahead. Findings that are likely responsible for Gilts lifting into the upper-half of a 90.29-54 band post-release.

22 May 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk