EUROPEAN FIXED UPDATE: USTs await further shutdown details & ADP, Gilts hit by Reeves

USTs: U/C, 112-15+

• Currently holding around the unchanged mark, though the benchmark has posted losses of a handful of ticks at worst this morning. Unable to materially benefit from the deteriorating risk tone, though the complex is off worst in a narrow 112-12 to 112-16+ band.


• The risk tone has been dented by the US government shutdown coming into effect at 05:00BST this morning. USTs were initially unreactive to this before coming under some modest pressure to a 112-12 low as European participants began to arrive. Modest bearishness that reflects the additional yield premia of the government shutting down, given the uncertainty this now presents.


• As it stands, there is no indication of when the shutdown will resolve, the next scheduled event is a 15:00BST press conference from Republican House & Senate leaders. While a short-term shutdown does not typically have much lasting impact on price action, a longer-term one could have growth implications and also weigh on the US’ credit rating.


• As a reminder, in 2018 Fitch warned that an extended shutdown could spark a downgrade to the US’ AAA rating (currently AA+). Since, we have seen the major agencies all warn about increasing US budgetary and general fiscal risks, a point that becomes more acute during a shutdown.


• Given the shutdown, which means no weekly claims or NFP this week as things stand, today’s ADP release draws even greater attention than normal; as will the ISM print, and particularly the labour market components. ADP is expected at 50k (prev. 54k); for reference, NFP is currently also forecast at 50k (prev. 22k). Ahead of this, markets ascribe around a 95% probability of a cut by the Fed in October, with 43.5bps by end-2025 and 106bps by end-2026.

Bunds: -21 ticks, 128.26

• The narrative is much the same as peers, initially hitting a 128.24 low but came off worst by around 10 ticks in the early European morning as the broader tone deteriorated a touch.


• No real move to the region’s final PMIs. Internal commentary was bleak, Italy reported the sharpest decline in manufacturing conditions since June, France a “sobering reality" after August’s tentative signs of a recovery while Germany’s implies that only "limited credence” is being given to German fiscal announcements.


• Final HICP came in as expected for the headline and super-core, though the core was firmer than expected while services ticked up from the prior. Overall, no reaction to the release which follows cooler Spanish and French figures at the start of the week, but offset by a hotter German series. ECB pricing unphased.


• Ahead, 2035 supply due. As a reminder, recent taps have seen soft demand and the results of those outings have weighed on Bunds at the time.

Gilts: -14 ticks, 90.69

• Began the morning on the backfoot, down to a 90.54 trough shortly after trade resumed with downside of 30 ticks at most.


• However, as the general risk tone deteriorated the benchmark found some modest allure, trimming around half of that downside, but with Gilts the relative laggard and perhaps hit by the FTSE 100 lifting to a record high as heavyweight pharmaceutical names lead (see Equities) and the latest from Chancellor Reeves.


• Chancellor Reeves said she won’t be outlining details on the source of funding for policies ahead of the Budget, but the Guardian reports that she will be lifting the two-child benefit cap. Removing the cap would cost the exchequer around GBP 3.5bln/yr.


• No reaction to an interview with BoE’s Mann this morning, remarks that largely echoed her interview on Tuesday.


• No reaction to the Final Manufacturing PMI, came in unrevised. Internal commentary highlighted some encouraging points on price pressures, which if realised could pave the way for further BoE easing; however, UK firms are largely awaiting the Autumn Budget for taxation clarity from the Chancellor.


• Ahead, the UK docket is light and as such the complex will likely follow peers and draw direction from US data and updates on the shutdown.

01 Oct 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk