EUROPEAN FIXED UPDATE: Bolstered by growth concerns and tariff updates despite pressure from block trades & EU spending

USTs: +5 ticks, 111-18

• Despite a lack of scheduled events USTs were in the driving seat early doors with a huge block trade sparking a bout of selling pressure in the benchmark and reverberating through the broader complex as well.


• Specifically, a 78k 10yr block at 111-19 hit at 07:33GMT when USTs themselves were trading at 111-23. A block which brought the benchmark down to 111-15 over the course of three minutes before falling further to a 111-13 session low around seven minutes after it was reported.


• Thereafter, the benchmark recovered a touch and got back towards earlier levels before then moving lower with EGBs (see below for details).


• Ahead, the session remains focussed on the fallout of Trump allowing the tariff pause on Canada and Mexico to end as guided and the imposition of the extra 10% on China, measures which have already sparked retaliation and are helping to keep USTs in the green.


• Given the ongoing bullish bias, with USTs firmer in a 111-13 to 111-28+ band, yields are lower across most of the curve aside from at the 20yr point which is essentially flat.


• Amidst this, Fed pricing is currently hovering around 75bps by end-2025; on that, we await remarks from Fed’s Williams which will draw particularly scrutiny given the tariff measures and as growth/recession concerns were fanned further by Monday’s ISM and then subsequently another sizeable cut to the Atlanta Fed GDPnow, which is currently -2.8% for Q1.


• Finally, POTUS is set to deliver his State of the Union address this evening. A speech which will be scoured for anything on tariffs, trade, geopols and/or the state of the US economy, not to mention numerous other potential talking points.

Bunds: +45 ticks, 132.45

• Bid, benefitting from the tepid European tone as the region reacts to the imposition of tariffs by the US on Canada, China and Mexico. Note, nothing specific for Europe was announced by the US.


• Action which helped Bunds hit a 132.85 peak in the early morning with yields lower across the curve and the German 10yr moving back below the 2.5% mark after surmounting it on Monday; currently down to a 2.42% base and holding just within Monday’s 2.41-2.51% band.


• As discussed in USTs, the 07:33GMT block applied pressure on Bunds and sent them to a 132.34 session low; though, this was relatively brief with the benchmark swiftly pairing and printing the aforementioned high just after the negative European cash equity open.


• The morning’s main mover has been remarks from EU Commission President von der Leyen, who said that Europe is ready to “massively” boost defence spending, a plan labelled ReArm Europe which could mobilise as much as EUR 800bln for defence; a key point of this proposal would be to provide members with budget flexibility by ensuring defence spending does not contribute to excessive deficit procedures for four years, a point which is key for the likes of France and Italy.


• Von der Leyen’s remarks weighed on the fixed income space with Bunds trimming by nearly 30 ticks over the course of five minutes and then slipping further to match the aforementioned block-induced low.


• Ahead, the European docket is a little light but the region will be closely scrutinising updates to any of the above factors with yesterday’s 131.79 to 132.94 parameters serving as the first points of support and resistance.

Gilts: +51 ticks, 93.36

• Firmer in-fitting with the above points and as the risk tone in the UK market is also weighed on by the latest measures from Trump. Action which has taken Gilts past yesterday’s 93.39 best by 11 ticks thus far.


• As it stands, the UK is outperforming. Seemingly a function of the bullish bias in fixed income generally not being tempered by the latest from von der Leyen as discussed in Bunds above. As such, and shrugging off a brief dip on her comments, Gilts remain in proximity to session best.


• The UK-specific docket is light, and as such action will be a function of updates on tariffs and geopols. In relation to the latter point, the UK Chancellor has announced an intention to cut red tape for defence purposes; it remains to be seen if the UK will add any further spending commitments, given the EU proposal, on top of those outlined by PM Starmer before his US visit.


• No sustained reaction to the morning’s DMO tap with Gilts continued to trade in proximity to yesterday’s high after its passing; a sale which was well received with a strong cover (though it being sub-3x may bother some) even given a slightly lower average yield than the prior.

04 Mar 2025 - 10:25- ForexEU Research- Source: Newsquawk