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[MARKET ANALYSIS] Energy moderation allows fixed income to lift, EZ HICP ahead

The easing in energy prices contributes to a supportive environment for fixed income, as yields are pressured amidst mixed geopolitical developments.

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[MARKET ANALYSIS] Energy moderation allows fixed income to lift, EZ HICP ahead

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  • Fixed on a firmer footing as energy benchmarks continue to pullback, though WTI remains above USD 100/bbl, Brent above USD 105/bbl and Dutch TTF north of USD 50/MWh.
  • The main update came via the WSJ, reporting that US President Trump told his aides that he is willing to end the conflict even without reopening the Strait of Hormuz. The move towards potentially ending the conflict has weighed on energy and, in turn, pressured yields. However, the uncertainty around Hormuz means the energy, and by association price, risks have not meaningfully diminished at this point.
  • Nonetheless, the action has seen a slight moderation in market pricing for the ECB, with around 5bps or so of implied tightening removed W/W, though over 60bps of tightening remains implied by end-2026. A point that will become worth watching ever closer in the days/weeks ahead, as the narrative around the shocks repercussions focuses ever more on the growth implications.
  • Shortly, we have the EZ Flash HICP measures for March, after marked increases in the Spanish, French and German measures thus far. Into the data, Bunds are firmer by c. 20 ticks, around 15 off the 125.54 best.
  • USTs broadly in-fitting, firmer but off best in 110-22+ to 111-02 parameters. Ahead, the docket is headlined by Fed speak; however, the events/topics involved somewhat diminish the likelihood of pertinent updates.
  • Gilts in-fitting. Firmer by around 50 ticks at best, but have given up around half of that and are below the 88.00 mark in 87.65-88.23 parameters. No reaction to the final Q4 GDP series, or a slight upward revision to the 2025 total.
Context

The moderation of market pricing for ECB tightening reflects this sentiment, indicating that while some implied tightening has been removed, concerns about growth remain crucial as we await the EZ Flash HICP data, which could further influence expectations for monetary policy. Keep an eye on the bond market's reaction to this inflation data, as it may shift sentiment and positioning ahead of upcoming central bank communications.

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