EUROPEAN FIXED UPDATE: Bunds lower into the fiscal reform vote around 13:00-13:30GMT

Bunds: -43 ticks, 127.54

• Currently, at the low end of a 127.45-127.86 band with yields firmer across the curve which itself is notably steeper.


• Awaiting the German fiscal reform vote. The process in the Bundestag began at around 09:00GMT with a speech, remarks from those placing alternate bills and then a debate on the reform bill itself. Following this, there will be votes on the alternate bills from around 13:00GMT, votes which will not pass; thereafter, at 13:30GMT, Merz’s reform bill (billed as an amendment) will be voted on. Timings for guidance only.


• As it stands, it appears that the fiscal reform will pass with test votes and comments from those involved overnight pointing to the 31 seat margin being sufficient. A narrative which chimes with the pressure in Bunds, EUR strength and outperformance in the DAX 40.


• If the reform bill passes, then the pressure may continue and send the 10yr yield back to the recent 2.938% high, current session high is 2.846%. As a reminder, desks have remarked that the measures could push the yield into a 3.0-3.5% range or even as high as 4.0% if it spurs European-wide stimulus/reform. Recent support features at 127.20, 126.64 and 126.53


• On the flip side, if the bill does not pass, this would likely spark a marked rally in Bunds as the new Bundestag sits on March 25th and features a blocking minority of AfD and Die Linke. Recent resistance marks stand at 128.05, 120.30/33, 131.70/72, 132.04 and 132.56.


• Most recently, no real reaction to a better-than-previous but mixed vs forecast set of ZEW metrics, with the recovery from the prior seemingly driven by the above fiscal stimulus.

USTs: -1 tick, 110-19

• Just into the red but once again essentially pivoting the unchanged mark with US specifics light as we count down to the FOMC.


• Today we get another AtlantaFed GDPnow update following on from Housing Starts, IP and Import/Export prices. Following yesterday’s data, the tracker shifted to -2.1%. Note, today’s price metrics also factor into the upcoming PCE report which is seen just above 0.3% for both the headline and core M/M prints. Aside from data, the docket also features supply with a 20yr on offer.


• As mentioned, USTs are near the unchanged mark in a slim 110-17 to 110-24+ band which is entirely within Monday’s 110-14 to 110-30 parameters. For yields, the curve is once again mixed but today finds itself slightly steeper in-fitting with the bias from European peers.

Gilts: -42 ticks, 91.86

• In the red and the incremental underperformer. Finds itself at the bottom-end of a 91.76-92.08 band.


• Pressure which is in sympathy with EGBs with UK-specific updates light. Gilts opened at the mentioned high having gapped lower by 20 ticks and then slipped gradually over the first hour of trade to the mentioned base.


• There isn’t a single clear driver behind the pressure, with the stronger risk tone, EGB readacross, looming OBR deadline and today’s supply all perhaps factoring.


• On the OBR, ahead of next week’s forecast updates and accompanying statement (or possibly fiscal event) from the Chancellor the Government will today be unveiling billions of pounds of cuts to disability benefits.


• The Work & Pensions Secretary Kendall will outline the measures to the House of Commons at around 12:30GMT. Pressure in Gilts perhaps comes on this given the difficulty Starmer is expected to face pushing the measures through and as the scale of adjustments isn’t as significant as first briefing(s) implied i.e. the Chancellor may still need to find more money to clawback some headroom.


• No sustained/substantial reaction to DMO supply, which was strong with a b/c in excess of 3x and above the last tap.

18 Mar 2025 - 10:25- Fixed IncomeEU Research- Source: Newsquawk