EUROPEAN FIXED UPDATE: USTs contained into data & refunding, EGBs firmer but largely unaffected by a data deluge

USTs: +2 ticks, 112-06

• A relatively contained start to the session with USTs holding onto yesterday’s spoils, firmer by a handful of ticks in a 112-03 to 112-09 band. Limited resistance in the near-term, nothing of particular note until 114-03+ from early April and thereafter 114-10.


• Another packed US session ahead with earnings, incl. Mag 7 members, due but before that we get the latest Quarterly Refunding due and expect to see auction sizes maintained and reiteration of the language that current issuance sizes are sufficient to fund near-term borrowing needs.


• Note, we may get an update to the X-date today from the CBO, which is currently projected around August/September. An update that brings the date forward may increase pressure on US fiscal talks and the passage of Trump’s reconciliation bill, while a revision to a later date will provide some breathing room.


• On the data front, the docket begins with ADP as a preview into Friday’s NFP. Thereafter, Q1 GDP, PCE and Employment Costs due. For GDP, the final Atlanta Fed GDPnow tracker for Q1 had the annual real GDP growth measure at -2.7% (or -1.5% when gold adjusted).


• Afterwards, we get the monthly PCE figure. On April 16th Chair Powell said the core metric was likely 2.6% Y/Y and the headline at 2.3% (newswire consensus 2.6% and 2.2% respectively); if correct, this brings the metric ever closer to the 2% target. However, it may be too soon to see tariff-related inflation in the data.


• For instance, Fed’s Barkin has made the point that tariffs may not start to show up in inflation data for a couple of months as firms work their way through their current inventory.


• Nonetheless, the data will factor into the Fed’s monetary decisions for which markets currently imply around a 10% chance of a cut in May with a move not priced until July (-38bps) and 95bps in total seen by end-2025.

Bunds: +24 ticks, 131.63

• Began the morning holding at the top-end of Tuesday’s 131.16-46 parameters, in-fitting with USTs. Then, after the European cash equity open, EGBs began to gradually pick up and despite being knocked briefly by marginally hotter German state CPI metrics than mainland consensus implies, Bunds are at a fresh 131.74 peak.


• A lot of data already this morning, no real reaction to cooler German Import Prices for March or a hotter-than-expected French Prelim. CPI release (follows a hot Spanish series on Tuesday, EZ Flash figures due Friday). On the growth front, French data robust as-expected this morning alongside stronger than expected Austrian and Italian metrics, in addition to some other regionals last week, in totality presenting an upward-skew to the EZ Flash Prelim. Q1 measure.


• A skew that proved correct as both EZ measures came in firmer than expected and at the top end of forecast range. Limited movement seen in EGBs on this, but ultimately returned quickly to pre-release levels. Note, at the same time, Italy’s CPI printed in-line for the standard figures and a touch cooler on a harmonised level.


• Ahead, we await the German mainland figures where the M/M is expected to remain at the prior month’s levels while the Y/Y is seen ticking down for both the standard and harmonised series; however, as mentioned, State CPIs came in on the hotter side M/M and also haven’t moderated quite as much as expected/implied Y/Y.


• As it stands, the skew for Friday’s EZ Flash HICP print is perhaps to the upside vs consensus for a slight cooling in the headline Y/Y rate to 2.1% (prev. 2.2%). For the core, we await the German breakdown but recall the Spanish core figure jumped to 2.4% (prev. 2.0%) earlier this week and today’s Italian breakdown showed a jump to 2.1% (prev. 1.7%)


• For the ECB, markets don’t quite fully price a June cut with around 21bps implied (i.e. a ~85% chance), odds that could be trimmed if inflation does print on the hotter-side. However, the ECB still has to balance the inflationary environment against any signs of a growth slowdown in the weeks/months ahead when survey periods cover the full impact of tariffs.


• Reminder, ECB’s Knot said a 25% US tariff could shave 0.3ppts off EZ growth, with further downside risk if retaliation follows and Nagel has stated the impact of tariffs for the bloc, particularly Germany, will be greater for growth than inflation.

Gilts: +36 ticks, 93.61

• Outperforming, gapped higher by just over 10 ticks and then in-fitting with EGBs after the cash equity open bega to extend higher and hit a 93.68 high for the session.


• Strength occurs despite a lack of fresh drivers in today’s session thus far aside from supply, an auction that came in strong with another b/c well clear of the 3x mark and a slim tail. Results sparked a modest bid in Gilts but one that occurred within existing 93.35-68 confines.


• Note, just after the Gilt close on Tuesday a piece in the Guardian noted that the US has divided trade talks into three priority groups and the UK is said to be in group two or three. Furthermore, the sources cited were concerned that any EU-UK deal could hamper UK-US talks; reminder, EU-UK to hold a summit late-May.

30 Apr 2025 - 10:20- Fixed IncomeData- Source: Newsquawk