EUROPEAN FIXED UPDATE: USTs pressured in reaction to Trump-Cook saga; Gilts/OATs digest regional political woes

USTs: -2.5 ticks, 111-28+

• USTs are trading on the back foot today and lower by a handful of ticks, to currently trade in a 111-25+ to 112-03+ range. A tinderbox of catalysts for markets to digest on Monday and overnight, including trade developments and US President Trump’s decision to fire Cook.


• Starting with trade developments, Trump said he will impose “substantial additional tariffs on countries that do not remove discriminatory actions such as digital taxes” against US tech companies. There has also been focus on South Korea’s efforts to woo the POTUS, as leaders of each country met – though not really any progress on that front. As for China, the WSJ reported that the Chinese top trade negotiator and USTR Greer will meet later this week.


• Moving to the Fed, Trump posted on Truth Social a letter removing Fed's Cook from her position with immediate effect. Though Cook said no cause exists for her to be fired and she will not resign. There was some two-way price action on the conflicting commentary; there was some brief upside following Trump’s letter, but this was ultimately short-lived as Cook refused to quit. From a yield perspective, there is some clear steepening in the curve today; short-end yields have been pressured as markets digest the dovish implications of yet another Trump appointee at the central bank, whilst the long-end focuses in on Fed stability/independence. ING highlights that “the US 2-30 year yield curve broke to a new cyclical high overnight at 122bp”, levels not seen since the start of the Russia-Ukraine war.


• The US Day sees the release of July durable goods (expected -4.0% M/M from a prior -9.4%); FHFA and Case-Shiller monthly house price indices for June; Conference Board's gauge of consumer confidence (seen at 96.4 from 97.2); the Richmond Fed's manufacturing gauge; Dallas Fed's services gauge; the Atlanta Fed will update its GDP tracking model (currently models growth of 2.3%). Also focus on the 2-year auction later today and Fed speak from Barkin.

Bunds: +34 ticks, 129.33

• Bunds are outperforming across global paper today, seemingly catching a “safety” bid, following on from the increasing risks of a French government collapse (discussed in OAT section). Currently trading in a 129.15 to 129.45 range, with price action fairly muted throughout the morning.


• France aside, Germany has its own politics to work about. Yesterday, German Chancellor Merz said that a welfare state is "no longer financially viable given our economic performance" – calling for welfare reforms. This may raise political conflicts between the current coalition.

OATs: -17 ticks, 121.75

• OATs are lower today to the tune of around 10 ticks, extending on the prior day’s losses where French paper reacted to PM Bayrou’s calls for a confidence vote – it doesn’t seem likely he will get that (discussed below). In terms of price action today, OATs have traded in a 121.54 to 121.98 range. As it stands, the 10y German-French spread sits at 78.06bps, heading back towards levels seen on Liberation Day. As a reminder, in the prior session the spread widened roughly 4.3bps, a move which has continued slightly to make a total widening of 12.8bps at most (from Monday's open to current).


• On Monday, French PM Bayrou said he would seek a confidence vote from parliament on September 8th. Bayrou is seeking to garner support for his unpopular budget, which plans to squeeze EUR 43.8bln from government spending, vital for stabilising the dire state of France's finances. The three main opposition parties said they would not back the Prime Minister in a confidence vote, should they do so, his minority government would collapse. Politico wrote this “seems to mark the beginning of the end of the Bayrou government”; Danske Bank write “we think there is a significant likelihood of Bayrou not continuing as French PM”. Elsewhere, French Consumer Confidence printed below expectations.

Gilts: -55 ticks, 90.45

• Gilts are the clear underperformer today as UK paper returns from holiday, and plays catch-up to the broader losses seen in the prior session. Of course, French/US political uncertainty is factoring, but also as UK fiscal woes gradually come into the forefront of traders’ minds. As it stands, political commentary has been exceptionally downbeat on how Chancellor Reeves will enact her high-growth/no tax increase budget this autumn.


• From a yield perspective, the 10yr went as high as 4.77% today; traders tout levels above 4.80% as the “danger zone” for Chancellor Reeves and her “black hole”.


• Focus for the rest of the day will be on BoE’s Mann who is set to speak on "The Institutional evolution of central banks: providing stability", and we are currently guided to a text release.

26 Aug 2025 - 10:00- ForexEU Research- Source: Newswires