EUROPEAN FIXED UPDATE: USTs off lows but remain in the red while EGBs inch higher

USTs: -4 ticks, 110-12

• An upward bias is present, though USTs remain in the red, a move off lows which began in the European morning despite a lack of specific drivers at the time and was potentially a function of a bout of pressure in the crude space weighing on yields.


• Overnight action had a modest bearish bias, in a pullback from Tuesday’s gains and as China’s tech names rallied and propped up sentiment.


• As it stands, USTs are at the mid-point of a 110-08 to 110-19+ band and while they have been in the green on a few occasions the moves have been fleeting at best and minimal in nature.


• Today’s session is largely a waiting game until the after-hours numbers from NVIDIA. However, we do get Fed’s Barkin & Bostic alongside a 7yr auction and more executive orders from POTUS beforehand.


• Tuesday’s 5yr auction featured a robust cover and stopped through by 1bps vs the when-issue, a sign of strong demand; note, there was no significant/sustained move in USTs at the time.

Bunds: +12 ticks, 132.60

• Firmer, picked up in the early European morning in tandem with the mentioned move in USTs. Aside from energy dynamics, drivers behind the move at the time were limited. Since, with newsflow quiet and despite a pick-up in the crude benchmarks, EGBs remain in the green and just off best.


• Specifically, Bunds picked up from a 132.24 base to opening levels of 132.47 in the early morning and then extended to a 132.76 peak after the cash open. As it stands, Bunds are holding around 10 ticks from best levels but still firmly in the green.


• Action which leaves the benchmark just above Tuesday’s 132.59 best and at a fresh WTD peak. Focus for the session is on the above US events in addition to dual-Bund supply and any updates from French President Macron’s briefing.


• Macron is set to provide other EU leaders with a summary of his meeting with US President Trump, from this we look for any update on what Trump has demanded by way of defence spending (reminder, US officials have been pushing an increase towards 5% of GDP) and then crucially details on how the bloc intends to fund this.

Gilts: +9 ticks, 93.27

• In-fitting with EGBs. UK specifics have been very light so far as we await UK PM Starmer’s PMQs appearance for fresh insight into the defence spending increase he announced on Tuesday and details ahead of his US trip on Thursday.


• On the first point, focus will be on any indications that the government will not be able to fund the spending via better-than-expected growth outturns and a cut to aid budgets as Starmer outlined yesterday.


• On the second point, any insight into what Starmer intends to achieve from his meeting with Trump and what, if any, other concessions/measures (on top of the defence spending increase) he may have to provide to court favour with POTUS and work towards positioning the UK for exemptions to potential tariffs.


• Gilts at the upper-end of a 93.07 to 93.48 band, the top-end of which is a marginal new WTD peak while the trough remains some way clear of Tuesday’s 92.67 base. If the modest bullish move continues then we look to resistance at 93.71 before 94.00 and then the 94.35 YTD peak.

26 Feb 2025 - 10:00- ForexEU Research- Source: Newsquawk