EUROPEAN FIXED UPDATE: USTs flat into CPI & Bowman, Bunds lead, OATs await Bayrou & Gilts await Bailey/Reeves

USTs: U/C, 110-24

• Flat. In a very narrow 110-20 to 110-26 band despite more pronounced action in peers (see below).


• Contained trade is likely a function of participants waiting to see how today’s CPI prints and what Fed officials have to say about it.


• CPI is expected to pick up to 0.3% M/M in June (prev. 0.1%) for both the headline and core. While the Y/Y is seen at 2.7% (prev. 2.4%) and 3.0% (prev. 2.8%) for the headline and core respectively. A series that will be, primarily, scrutinised for any signs of tariff-induced price pressures, as US officials (e.g. Hassett on CNBC on Monday) continue to make the case that it would already be evident in the data.


• For the Fed, most officials have taken a cautious approach amid expectations that consumer prices are expected to rise towards the end of the year due to tariff effects, as such a hotter-than-expected print driven by tariff effects could spark a hawkish adjustment to the view.


• On the other hand, the likes of Bowman and Waller have intimated that tariff-induced price rises might be a one-off and would therefore allow officials to look at rate cuts as soon as the July meeting if inflation pressures remain contained.


• Bowman is due to speak this evening on "Unleashing a Financially Inclusive Future", a text is expected but there will not be a Q&A. Later in the week, Waller is also scheduled.


• Into this, market pricing has just a c. 5% implied probability of a July cut, with a move not seen until October (-30bps implied), thereafter December doesn't quite have another move implied (-47.5bps implied).

Bunds: +38 ticks, 129.57

• Leading peers, firmer by just under 50 ticks at best having peaked at 129.65 thus far. Upside that takes the benchmark to within reach of Friday’s 129.74 peak but leaves it shy of 130.00 and then multiple past peaks above, which continue all the way back to 131.95 from mid-June when the recent downward trend began.


• Specifics for the bloc are a little light in the early morning. Despite this, Bunds picked up from a 129.19 low (where they were around flat on the session) to the above peak between 06:00 and 09:00BST, with a particular spike occurring just before 09:00BST. Again, no clear or specific fundamental driver emerged at the time.


• Instead, the move was possibly a function of the fixed complex generally taking a breather from its recent downward trajectory and also possibly some positioning into US CPI and key Fed speak thereafter (see USTs).


• And/or, possibly a further reaction yesterday’s reports (just after 17:10BST) that the ECB is to discuss a more negative scenario next week than previously envisaged in June, via Reuters citing sources; though, Bunds moved higher on Monday at the time and the report made clear that any discussion around a cut would not be until September.


• Most recently, German ZEW came in firmer than expected for July, with ZEW noting the positive sentiment is becoming “more firmly established” and nearly ⅔ surveyed expect the economy to improve. EZ IP also beat expectations for May. No notable move in EGBs on the metrics.


• For Germany, Schatz supply is due this morning. A new line, but comparable outings have been well received in recent weeks, recovering from a bout of relatively poor taps in April and May. The sale should pass without incident, though yesterday’s 2028 EU bond and tomorrow's dual-Bund present competition, despite there being no other taps scheduled today.


• Supply and US events aside, Germany will be attentive to any spillover from OATs in the event of a significant reaction to Bayrou’s presentation (see below). Otherwise, in the absence of trade updates, we are counting down to tomorrow’s EU Multiannual Financial Framework presentation.

OATs: +40 ticks, 122.72

• PM Bayrou from 15:00BST will begin presenting details of the 2026 budget. The goal will be cost savings of EUR 40bln by 2026, in order to bring the deficit-to-GDP ratio down to 4.6% vs the 5.4% projected for 2025, in-line with their fiscal commitments to the EU.


• The 2025 presentation brought down former PM Barnier, after he attempted to negotiate with National Rally (RN) and failed to secure their support before being subject to a censure/confidence motion against him.


• To prevent this, Bayrou is presenting the fiscal details two months before the bill is due to be presented in parliament in September, a tactic designed to prevent the lack-of-warning justification used by opposing parties in censure motions.


• Bayrou’s plans are expected to focus primarily on spending cuts, as the government has already committed to reversing some tax measures, making further manoeuvres tricky. As Bayrou heads up a minority government, he needs to court support from the left and/or right to pass the motion via Article 49.3.


• Bloomberg, citing the Finance Minister Lombard, reports that Bayrou will attempt to convince the Socialist Party (PS) after successfully courting their support earlier in the year. However, relations have since deteriorated a touch with PS having tabled a pension-related censure motion in June.


• Fiscal reform is required to bring the deficit level under control and continue/begin to restore full market confidence in France, after the nation’s 10yr yield spread vs Germany jumped above 85bps last June from the 45-50bps area and has remained elevated since.


• Into the update, OATs are bid but trading in-line with other EGBs, in a 122.23 to 122.77 band. Continued upside encounters numerous peaks from recent sessions at 122.95, 123.28, 123.41 and 123.98 in the near term. In contrast, a move lower only really has Monday’s 122.24 base as support with attention instead on yields and any move towards 3.50% in the 10yr, current session peak at 3.43%.

Gilts: +24 ticks, 92.07

• Firmer, between USTs and Bunds in terms of magnitude. The immediate docket is light for the UK as we count down to the Mansion House speeches by BoE’s Bailey and Chancellor Reeves.


• Into this, Gilts are at the upper-end of a 91.86 to 92.06 band. Notching a WTD peak and now eyeing 92.19 from last Thursday before that week’s 92.63 best.


• Beginning with Bailey, recent remarks from the Governor have reiterated his view that the trajectory for rates remains downward alongside using the gradual and careful language that has accompanied policy this year. More interestingly, Bailey flagged the possibility for larger rate reductions in the case of labour market pressure - next ONS series due on Thursday.


• Chancellor Reeves is, according to the morning’s media briefings by the Treasury, to announce a package amounting to the ‘biggest financial regulation reforms in a decade’. Within this, the most pertinent is likely to be pension reform and specifically a review around auto-enrolment. More broadly though, her speech will be scrutinised for any insight into: confidence on the economy, fiscal rules (i.e. deviating from them), spending cuts and/or tax rises; ahead of the Autumn Budget.

15 Jul 2025 - 10:20- ForexData- Source: Newsquawk