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[MARKET ANALYSIS] Fixed began pressured given Trump-driven energy moves, but Bunds, Gilts and USTs have all since bounced from contract lows

Today's market analysis highlights a bearish start for fixed income as energy prices surged due to tensions around Iran, pushing USTs and Bunds to contract lows.

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[MARKET ANALYSIS] Fixed began pressured given Trump-driven energy moves, but Bunds, Gilts and USTs have all since bounced from contract lows

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  • A bearish start to the week as US President Trump's escalatory language on Iran and the associated energy move, with Brent peaking at USD 112/bbl overnight.
  • Amidst this, fixed benchmarks spent the APAC session in the red. Note, JGBs derived pressure from this alongside a weak 5yr outing and reports around the compiling of a supplementary Japanese budget, see 09:35 BST for more details.
  • USTs hit a 108-30 trough, a fresh contract low, in the early hours. Since, and particularly after remarks from the Iranian Foreign Ministry spokesperson, energy benchmarks have eased off, which has allowed fixed to lift, taking USTs to a 109-06 high with gains of one tick on the session. Today's US docket is quiet, but the week is busy with Nvidia due before the FOMC Minutes and a 20yr auction. From the Minutes, the last with Powell as Chair, BofA expects the account to "reinforce the Fed's recent hawkish tone", showing that Warsh will inherit a Fed with "little appetite to cut".
  • Bunds in-fitting with the above, hit a 123.74 base, which is also a new contract low. Given the discussed energy moves, the benchmark has pared much of its 53 ticks of downside and is now lower by a more modest c. 15 ticks, just off a 124.15 peak. Newsflow has been relatively limited, we had remarks from but no move to ECB's Lagarde, who essentially noted that she is watching the yield space. On yields, the German 10yr hit a 3.19% peak overnight, a new high for the year and the highest since 2011's 3.49% best. Furthermore, the energy moves continue to be reflected in near-term policy expectations, with 21bps of ECB tightening implied for June and 75bps by end-2026.
  • Gilts opened near-enough flat, as the bearish leads from overnight had already begun to moderate, in addition to the lack of significant weekend development on the fate of PM Starmer. Furthermore, the complex is perhaps deriving some support from a revival of coverage that contenders Burnham and Streeting would like to rejoin the EU at some point; albeit, Burnham did somewhat distance himself from this over the weekend, concerning the upcoming by-election campaigning at least. As it stands, Gilts are holding at highs of 85.47 with gains of c. 25 ticks. A bounce from the 84.96 base this morning, another contract low. 
Context

However, following some easing in energy prices and remarks from Iranian officials, we see a recovery in these bonds, indicating potential volatility ahead amid busy scheduled events like the upcoming FOMC Minutes and a significant 20-year auction.

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