[MARKET ANALYSIS] Fixed benchmarks dictated by action in the crude complex; USTs currently near session highs

Initial bearish bias across the fixed income was facilitated by stronger energy prices, as the geopolitical environment remains exceptionally turbulent and as traders count down their clocks to President Trump’s 20:00EDT Iran deadline. However, in recent trade the crude complex took a tumble – but lacked a clear driver. Some market participants pointed towards an Axios piece from overnight, which reported that Trump may hold off from strikes on Iran if he sees a “deal coming together”. Markets also appear to be digesting some relatively positive mood from the Pakistani side, with a couple analysts suggesting a breakthrough could be close; whilst another suggested that a “framework of understanding” for a ceasefire is close. The pressure in energy prices therefore helped to boost fixed benchmarks to session highs.
To briefly recap the geopolitical environment, US President Trump said he thinks talks are going well with Iran and reiterated the Tuesday, 7th April 20:00EDT deadline. Trump said the US has plans to decimate Iran's bridges by Tuesday night, and he threatened that every power plant will be out of business at midnight, in which decimation would happen over a four-hour period. On the deadline itself, two Israeli sources and diplomats familiar with the details of the talks said there is a very low chance of an agreement between Iran and the US.
USTs were initially lower and were holding near troughs throughout the early portion of the morning, before then surging alongside the pressure in the crude complex. Currently holding at the upper end of a 110-21+ to 110-29+ range. On the data front, weekly ADP jobs figures, durable goods orders for February. On today’s speakers’ slate, Fed's Williams (voter) will speak on Bloomberg TV; Fed’s Goolsbee (2027 voter, dovish) will speak on the outlook for policy and the economy; Fed’s Vice Chair Jefferson (voter, dovish) will speak on the economic outlook and the labour market.
Bunds followed the above, and currently holding at the upper end of a 125.31-125.73 range – though still remains incrementally in the red. Geopols aside, German benchmarks have had a number of European PMI Final metrics to digest; Spain topped expectations, Italy missed whilst the EZ-wide figure was revised incrementally higher. Interesting commentary from within the German release suggested that, “the lack of pricing power in the service sector is important from a monetary policy perspective, as it limits the amount of upward pressure on core inflation, a measure that the ECB will be closely watching when considering interest rate increases.” Markets await a 2035 Bund auction shortly.
Gilts are currently flat. As above, initially weighed by stronger energy prices, but UK paper then soared to highs as energy prices dipped. Currently towards the upper end of a 88.23-88.72 range. UK PMI Finals were revised lower, with analysts citing slower output growth as a result of the war in the Middle East. It also highlighted increasing risks to “stagflation”, and increasing costs pressures.