EUROPEAN FIXED UPDATE: USTs hold near unchanged while Bunds slump on the latest fiscal updates

USTs: +2 ticks, 111-12

• Divergence between USTs and Bunds. USTs were initially underpinned by the soft risk tone.


• USTs notched a 111-25 peak overnight, surpassing Monday’s 111-13+ best. Action which weighed on yields across the curve with the belly leading as has been the case in recent weeks.


• However, as the European morning progressed USTs waned from best and are now essentially unchanged on the session, with yields trimming initial pressure in tandem; the benchmark has been perhaps been hit in sympathy with EGBs and more pertinently reacting to the risk tone inching higher, with US futures firmer across the board and European benchmarks now primarily in the green.


• If the pullback continues then USTs have a little bit of clean air until the 111-00 mark below which Monday’s base was 110-25+ and then 110-15 and 110-12+ from the two sessions prior.


• The docket ahead is headlined by JOLTS for January and thereafter a USD 58bln 3yr note auction and various briefings from administration officials including President Trump and the White House Press Secretary.

Bunds: -70 ticks, 127.04

• Underperforming vs USTs on account of the latest reports on potential fiscal reform. On Monday, the situation was looking somewhat less constructive with the Greens formally opposing Merz’s original plans and unveiling their own defence reform. As a reminder, Merz needs both the SPD and Greens to back him in the old Bundestag to hit the required two-thirds majority for constitutional reform.


• Opposition which seemingly reduced the odds of reform passing before the new Bundestag sits on March 25th. However, talks between the Green’s and CSU continued until late on Monday. Early doors today, Bloomberg reported that the Green party co-leader said they are hopeful of a defence deal occurring this week. An update which weighed on Bunds pushing them more firmly below the 128.00 mark to a current 127.04 trough.


• A Newsquawk analysis piece outlining the recent updates in more detail is available on the headline feed at 07:20GMT.


• Amidst this, yields are firmer across the curve but with the long end firmly in the driving seat and the 10yr to a 2.86% peak, the YTD best is 2.929% from last week. For the benchmark itself, it has now taken out Friday’s base at 127.18 with the contract trough next up at 126.64.


• Aside from fiscal updates, supply is in focus and serves as another bearish factor in current trade, with a 2027 Schatz tap due shortly and the EU syndication of a new 10yr benchmark, last year’s 10yr syndication saw EUR 7bln sold on its introduction.

Gilts: -17 ticks, 92.07

• Once again, another session of limited catalysts for the UK specifically as we count down to Friday’s GDP and then the March 26th OBR update.


• For today, PM Starmer held a cabinet meeting early doors which Politico reports is set to be focussed on the domestic agenda. This aside, European defence officials are due to meet in France today; a meeting which follows on from reports in the FT that 20/27 EU nations have written a paper calling for closer defence ties between the UK and the bloc.


• Given the lack of drivers, Gilts find themselves in the red but somewhere between USTs and Bunds in terms of magnitude, a dynamic which occurred at numerous points last week. Benchmark is down to and holding around a 92.07 base, notching a marginal new WTD trough and now looking to the figure and 91.67 from last Thursday for support.


• Supply is also in focus for the UK, with the DMO reportedly attracting demand in excess of GBP 66bln for the 1.875% 2049 I/L.

11 Mar 2025 - 10:00- ForexEU Research- Source: Newsquawk