[MARKET ANALYSIS] Fixed attempts to edge back towards Tuesday's best ahead of PCE

• A contained to modestly firmer start for fixed. USTs and Bunds are slowly inching their way back towards Tuesday’s best, but remain around five and 30 ticks shy, respectively. Gilts differ slightly, in that they opened within reach of Tuesday’s 87.15 best, but have since eased and lost the figure, though still post relative outperformance.
• Today’s docket is headlined by US PCE, though any further updates to the geopolitical developments we saw late-Tuesday could ultimately overshadow. For PCE, the core M/M is seen at 0.2% (prev. 0.1%), which would be in-fitting with the CPI print. Data will help inform the Fed debate, with the inflation-side of the mandate still very much in the driving seat; however, near-term Fed bets may not shift dramatically ahead of Friday. On Friday, we have the preliminary BLS labour revision, and Chair Warsh at Jackson Hole, both events could theoretically meaningfully alter the narrative.
• For reference, current Fed pricing via CME has around a 64% implied probability of unchanged in September, and around a 30% chance of unchanged by end-2026, with a 45% chance currently to one hike by the end of the year.
• Bunds firmer but, as discussed, shy of Tuesday’s best. Currently holding in the green with gains of around 15 ticks, but a similar amount shy of the 124.65 peak. No move this morning to ECB’s Schnabel, who in a Bloomberg interview stuck to her known hawkish-bias, while noting the ECB’s data-dependent language. Supply due for Germany shortly, but, as has been the case recently and particularly WTD, movement in Dutch TTF will likely prove the major driving force behind Bund action.
• Gilts marginally outperform, but are also off best. Note, coverage remains on the September contract for now, but increasingly activity is turning to the December one, as a way of fully encapsulating what could be a significant September BoE meeting given the bond update that is due, in addition to the first budget of the Burnham government thereafter.

Sessions framed as a drift back toward a prior session's best ahead of a marquee inflation print are a recurring pattern: positioning tends to stay shallow, ranges compress, and the direction of travel matters less than whether the data validate the move already made. The distinction worth drawing on the docket is between the release itself and the follow-ons around it; a core print in line with the CPI that preceded it has historically repriced the front end only modestly, since CPI typically sets the distribution of expectations for PCE in advance, while scheduled revisions and marquee central bank speeches have more often been the events that shift the path narrative. The cited futures pricing puts the market's centre of gravity on hold rather than on near-term action, which is the setup in which an upside inflation surprise tends to do more damage than a downside one does good, an asymmetry seen repeatedly in late-cycle hold regimes. On the European leg, the note correctly flags that Bund price action has been tracking gas rather than domestic supply or official commentary; hawkish remarks from an official with an established bias have historically moved the curve only when they shift the perceived median, not when they restate a known stance. The gilt roll toward the December contract ahead of a heavy autumn calendar is standard practice and typically flatters relative performance in the front contract; the transmission channel to watch there is the supply and duration signal from the BoE's bond update rather than the rate decision itself.