[MARKET ANALYSIS] Fixed benchmarks bearish given the risk tone and looming supply

• A modestly bearish start for fixed income. Action driven by the mostly constructive risk tone, though there are some pockets of weakness in Equities. Furthermore, the action is perhaps a function of the large amount of supply due in the nearterm, with auctions due from the UK, Italy, Germany and then later the US, before an in-focus Japanese 40-year tap overnight.
• USTs a tick or two softer in a 111-23 to 111-26+ band, within Monday's 111-22+ to 111-30 parameters. Aside from supply, which follows a solid 2yr auction last night, the US docket is headlined by ADP.
• Bunds are also lower, with magnitudes slightly larger to losses of 15 ticks at most; perhaps a function of looming supply, and as such it will be interesting to see how Bunds, and EGBs generally, fare after 10:30GMT. Specifics for the bloc are a little light, no data of note and commentary quiet into the ECB next week; in brief, the "good place" narrative will likely remain.
• Gilts gapped lower by 15 ticks, acknowledging the pressure seen in peers overnight from the constructive risk tone. Since, the benchmark has stabilised slightly off lows and trades broadly in line with European benchmarks. The docket features 2033 supply.

The fixed income market is starting off on a bearish note, driven by a constructive risk tone and expectations of significant supply from upcoming auctions across multiple regions, including the UK, Italy, Germany, and the US. This supply surge, following a solid 2-year auction, is likely pressuring benchmarks like USTs and Bunds, which are softening in response. As more supply enters the market, attention will be on how these bonds perform, particularly as the ECB meeting approaches, with expectations of movement based on market sentiment and auction outcomes.