EUROPEAN FIXED UPDATE: Yields continue to fall into NFP & Powell, markets now fully price four 25bps Fed cuts in 2025

USTs: +20 ticks, 113-08

• Another session of gains as the risk tone remains downbeat and has deteriorated further in the European morning. Bringing USTs to a 113-12+ peak, weighing on yields across the curve with the belly/10yr once again lagging.


• Updates overnight were slightly limited given the absence of Chinese participants, though the remarks from Trump, his administration and reporting around it underscored the point that Trump’s measures are a new global order and seemingly placed the onus on partners to bring him something "phenomenal".


• Today’s moves have already been sufficient to see markets fully price in four 25bps cuts in 2025 (101bps implied). However, NFP looms and markets may find themselves more reactive to a downside surprise on the 135k (prev. 151k) consensus.


• Thereafter, Chair Powell is scheduled and is expected to provide a text release and hold a Q&A after his remarks on the “Economic Outlook”. Powell will of course be scrutinised for his view on the US tariffs and what they mean for the Fed, with the price and employment sides of the mandate potentially set to pull the board in opposite directions as the tariff impact filters through.


• Since the Rose Garden speech, we have heard from Fed's Jefferson who said there is no need to be in a hurry on policy adjustments, sentiment echoed by Cook who said the Fed needs to be "patient but attentive".

Bunds: +80 ticks, 130.62

• Already getting on for gains of 100 ticks on the day with Payrolls and Powell yet to print. Initial action was modest in nature, with overnight focus primarily on Japan as JGBs played catchup to Thursday’s moves and BoJ bets were altered to show just 13bps of tightening implied for the rest of 2025.


• Peaked at 130.75 thus far with gains of 163 ticks WTD; bringing the benchmark closer to pre-fiscal adjustment highs which broadly speaking begin at 131.31 before a gap to 132.04 and 132.56/71 thereafter.


• As above, German yields are lower across the curve, though the move in Europe is much more overtly flattening (vs US where the curve is flatter but the belly leads). Reflecting this, the odds of an April ECB cut remain in a 75-80% band while implied easing by end-2025 has ticked up to 77bps vs circa. 70bps at this point on Thursday.


• The European docket is light aside from Moody’s on the bloc's sovereign rating, as such the narrative will likely be dictated by the markets tone, any tariff/trade update, NFP and Chair Powell.

Gilts: +90 ticks, 94.08

• Upside of 104 ticks at most so far, higher by over 230 ticks on the week and around 350 above the low from last Wednesday’s Spring Statement.


• Weighing on the UK 10yr yield to a 4.406% base, its lowest since the early-February 4.38% YTD base, which has provided Chancellor Reeves with some welcome fiscal breathing room. However, any relief from this will be tempered by the growth hit from the 10% baseline tariff and the global inflationary impact when the tariffs are actually enacted.


• On the UK, Deutsche Bank says the tariffs could impact GDP by 0.3-0.6pps. As a reminder, the OBR already cut the near-term growth view essentially in half to 1.0%.


• As outlined, the docket ahead is entirely focussed on events stateside .

04 Apr 2025 - 09:55- ForexEU Research- Source: Newsquawk