[MARKET ANALYSIS] Fixed benchmarks lacklustre post-Fed, and as Gilts await the BoE

Global fixed benchmarks are entirely holding incrementally above the unchanged mark, with price action lacklustre since the European cash open. It appears that fixed benchmarks are taking a breather following this week’s hefty declines in yields, which comes amidst sustained pressure in the energy complex. On the geopolitical front, US-Iran have signed the MoU, which means the Strait of Hormuz is theoreticaly open for ships to pass through, whilst the US blockade will also be lifted.
USTs (+1 tick) trades within a 109-09+ to 109-20+ range, and well off the lows seen overnight, which stemmed from a hawkish Fed on Wednesday. A full recap can be found on the headline feed, but in brief, the unchanged policy was accompanied by hawkish dot plots and the removal of the easing bias. From a yield perspective, the US 2s10s curve is flatter post-Fed, and currently holding around 27.5bps, a level not seen since Liberation Day (2nd Apr 2025). This has unsurprisingly been led by the short-end, following the hawkish Fed. However, should inflation begin to ease later this year, there is some chance that the spread begins to widen once again, with short-end yields reflecting a less hawkish Fed. The long end may also be affected, with focus on Chair Warsh announcing a dedicated task force to review the Bank’s balance sheet. Any hints of an acceleration of the roll-off would undoubtedly lead to a considerably steeper curve.
Bunds (+2 ticks) and Gilts (+5 ticks) trade in line with peers. Focusing on UK paper, traders will await the BoE this afternoon and then the start of the Makerfield by-election. In brief, the BoE is expected to keep rates on hold at 3.75%, with a mixed vote split. Some see in a range of 8-1 to 6-3. Thereafter, attention shifts to domestic politics, whereby a Burnham victory could see him launch a leadership challenge; for reference, he is viewed as the worst candidate for Gilts. There is a full preview in the Research Suite for those interested.
Finally, the UK jobs report was stronger than expected. It is unlikely to shift the dial for the BoE at today’s meeting, but the underlying theme (sticky wages and better jobs market) will likely be in mind for the hawkish members at the BoE.