EUROPEAN FIXED UPDATE: Weighed on by the constructive US tone, tariff commentary and energy strength

USTs: -12 ticks, 110-16

• Softer, given the constructive US risk tone as NVIDIA results weren’t the near 10% move that options had been implying, though of course it remains to be seen how they will open in today’s session; with tariffs (see below) and energy strength also influencing.


• NVIDIA & energy aside, focus is firmly on tariffs with the latest bout of rhetoric from US President Trump. Language which was a little muddled at points and required some clarification from the White House and Commerce Secretary. Overall, global tariffs are still set to come into effect on April 2nd and there is a possibility for a pause on some measures with Canada and Mexico by the March 4th deadline, depending on how satisfied POTUS is.


• Language which has once again upped the tariff ante and increased inflation concerns, leading to upside in yields across the curve but with very slight outperformance in the belly at the moment. Ahead, we await further posts/remarks from Trump or his officials on the above.


• As it stands, USTs are at the bottom of a 110-15 to 110-26 band. While softer, the benchmark remains comfortably clear of yesterday’s 110-08 base.


• Trump/tariffs aside, the session ahead also features remarks from Fed’s Barkin (repeat), Barr, Bowman, Hammack, Haker & Schmid; with a text release expected from all ex-Barkin. Additionally, Q4 GDP & PCE second readings and weekly claims are due; from the latter series, the continuing figure coincides with the BLS survey period.

Bunds: -4 ticks, 132.61

• Initially held just in the green but has seemingly succumbed to intensifying energy upside in the European morning. Action at the start of the session was, once again, driven by the tariff updates from Trump and remarks from EU officials/member nations on retaliatory measures; which sparked conflicting leads for EGBs given the potential growth headwinds and inflation tailwinds from such measures.


• As such, Bunds find themselves at the lower-end of a 132.57-132.96 band and now in the red by a handful of ticks. Trade which leaves them just about within yesterday’s 132.24-97 parameters. From a yield perspective, the curve is mixed but steeper with the long end driving


• Ahead, the docket is quite light for the bloc aside from ECB Minutes, though given the extensive development in the conversation around neutral and March’s meeting (with particular reference to Schnabel’s speeches). For reference, a 25bps cut is entirely priced for March but thereafter it becomes slightly less clear with 60% chance of a move in April and the next cut fully priced in June.

Gilts: -11 ticks, 93.06

• Specifics for the UK have been quite light this week. Gilts were also essentially unchanged but have also succumbed to intensifying energy action; currently trade at the low-end of a modest 93.03-93.33 band.


• Focus is, as for EGBs, on the fallout from Trump’s tariff language. On this, we await the meeting between Trump and UK PM Starmer today for any signs of a deal or exemptions from some or all of the touted measures.


• As a reminder, Starmer has already pledged increases in defence spending and a roadmap for further increases by the end of the current parliamentary period. An announcement which was well received by defence officials stateside.


• In particular, the press conference at 19:00GMT will be closely followed to see if Starmer has made any further concessions to the US and if Trump has accepted them.


• Supply from the UK was robust enough, though the sub-3x cover may have disappointed some, in the first conventional auction for the 2040 line after two well-received syndications. No reaction to the outing with focus firmly on the factors discussed elsewhere.

27 Feb 2025 - 10:20- ForexEU Research- Source: Newsquawk