EUROPEAN FIXED UPDATE: USTs and Bunds a touch softer into CPI and the ECB respectively

USTs: -4 ticks, 113-14

• Softer, as was the case at this point yesterday. Once again, the action is relatively modest in nature as the complex awaits CPI and thereafter 30yr supply.


• Into the above, USTs at the low end of a 113-12 to 113-15+ band. Entirely within Wednesday’s 113-05 to 113-20 parameters; as a reminder, PPI drove USTs higher but the mentioned peak printed a few hours later after the strong 10yr auction.


• Today, CPI is the main US driver. M/M figures are both seen at 0.3% from 0.2% and 0.3% for the headline and core respectively. Follows Wednesday’s PPI which was softer overall, though some of the PCE-related components were more hawkish than the headline suggested. Following the data, estimates from Morgan Stanley and Pantheon Macroeconomics range between 0.30-0.35% for PCE, due September 26th.


• For the Fed, markets continue to entirely price a 25bps cut next week with around a 7% chance of a 50bps move currently implied. At this stage, the bar for the CPI data to change the trajectory for a cut next week is extremely high; but, a particularly dovish print could see pricing tilt further towards the larger increment, and possibly make the vote split more stark.

Bunds: -4 ticks, 129.09

• Began the morning firmer by 14 ticks at best, notching a 129.28 peak and matching Tuesday’s high but stopping shy of 129.33 and 129.44 from Monday and Wednesday respectively.


• However, initial impetus faded into the European cash equity open. A move that occurred alongside a broader modest pullback in the fixed income space and as the USD strengthened. No fresh fundamental catalysts emerged at the time.


• A fade that took Bunds down to a 129.07 base, though comfortably above the figure and then a double bottom at 128.97 from the last two sessions before Monday’s 128.91 WTD trough.


• Of course, the day’s main event is the ECB. The Deposit Rate is expected to be maintained at 2.00%. Focus for the meeting will be on any insight into the divide between the doves/hawks, a point that could become starker depending on how the 2026 inflation forecast develops, with desks of the view that it will tick higher from 1.6% but remain beneath the 2% target.


• From Lagarde, we will be attentive to any further clarity on the above points, nuances around the future rate path and whether the current 2.0% level is terminal or not and finally insight into the French spread situation.


• On the latter, the widening in the OAT-Bund 10yr yield spread has been modest and despite the continued uncertainty and lack of optimism around fiscal reform it has remained within reach of 80bps. As such, the ECB will not be utilising TPI and is likely some distance from even considering it.

Gilts: +9 ticks, 91.42

• A softer start to the day, opened lower by just under 10 ticks and then slipped further to notch a 91.22 low. Action that followed the modest bearish bias that was in play for peers at that point.


• Since, Gilts have managed to lift off this low and move into the green, higher by near 15 ticks at best but stalling 11 ticks shy of Wednesday’s 91.58 peak. Upside that comes as Gilts are perhaps able to trade a little more freely than peers, as the UK docket is a very light one.


• Note, while outperforming, action is very modest on the session and comfortably within WTD confines.

11 Sep 2025 - 09:55- Fixed IncomeData- Source: Newsquawk