[MARKET ANALYSIS] Another bearish session amid energy moves and continued post-Waller hawkishness

A bearish start for benchmarks as the complex reacts to the overnight energy move (see 07:40BST for geopolitical analysis).
Action that was sufficient to push Bunds below the 125.00 handle and to a 124.82 base, lower by just over 40 ticks on the day. Since, no real reaction to the morning’s updates, including a UKMTO tanker report in Oman, despite modest energy upside at the time.
For Germany, June’s WPI was dictated by energy, with the Y/Y moderating from the prior but at an elevated level as mineral oil products were just under 22% higher vs June 2025. However, the same component was down 6.8% M/M, leading to a -0.7% headline M/M print (exp. 0.5%, prev. -0.6%). No move to the series. The near-term ticket has a 2028 Schatz sale scheduled, the attached coupon provides enough draw for the reopened line, even given the morning’s yield extension.
Gilts opened lower by a handful of ticks before extending below the 87.00 handle, and then moving sharply lower to an 86.42 base, catching up to the above and continuing the pattern of greater magnitudes of action vs peers on energy-related moves. Pressure may also be a function of pricing into the Burnham coronation on Friday, as he will become UK PM from the point Starmer formally hands over. On that, Rathbones has reduced its Gilts holding in order to protect against “fiscal irresponsibility” ahead of Burnham and the Chancellor decision. Note, likely outgoing Chancellor Reeves speaks at Mansion House this evening.
USTs also lower, down to a 108-17 trough given the energy move, which has seen a modest extension on the pressure after Fed’s Waller on Monday evening said another hot core inflation read would mean the Fed needs to consider a near-term hike. CPI today is seen at -0.1% M/M (prev. 0.5%), while the now even more pertinent core is seen at 0.2% M/M (prev. 0.2%). Following Waller and the recent energy moves, pricing for July has moved to nearly favour of a hike. We now look to testimony from Chair Warsh, which is scheduled for after CPI; note, a text release alongside CPI is possible.
Finally, JGBs outperformed overnight following a well received 20yr auction and commentary from the Finance Ministry, Katayama said it is time to consider including JGBs in NISA and that if the environment surrounding asset management changes sharply, a change to GPIF's portfolio could be examined.