[MARKET ANALYSIS] Fixed benchmarks mixed awaiting geopolitical updates, Gilts digest domestic politics

Global fixed benchmarks are mixed, with US and UK paper in the red, whilst Bunds remain afloat. Ultimately, focus has been on the volatile geopolitical environment, with attention on developments surrounding US-Iran second round talks. Initially, there were reports via a Pakistani source which suggested that the US-Iran delegation teams had arrived in Islamabad, however, Iranian State TV pushed back on these claims calling them “baseless” – they said that Iran “has not yet sent a delegation”. Markets will await how this unfolds, ahead of the expiration of the US-Iran ceasefire on Wednesday.
USTs are lower by around 3+ ticks and currently within a 111-17 to 111-22+ range. Ultimately moving at the whim of energy price fluctuations, with a recent bout of pressure in the benchmark after the Iranian side pushed back on reports that a delegation had arrived in Pakistan. Geopols aside, US March retail sales are the main focus (exp. 1.4% M/M, prev. 0.6%), alongside the weekly ADP employment change (prev. 39K), pending home sales (prev. -0.8% Y/Y; prev. 1.8% M/M), business inventories, and the Atlanta Fed GDPNow update (was prev. tracking Q1 growth of 1.3%). Elsewhere, Fed’s Waller is on the docket, though will not touch on monetary policy given the Bank is on blackout. From a yield perspective, the curve is a touch steeper this morning; the 2yr currently resides around 3.73%. A positive outcome from the second round of talks could see the 2yr breach back below the 3.70% and approach near-term lows at 3.67%.
Do note there will also be focus on the Warsh senate hearing, where he is set to tell lawmakers that Federal Reserve independence on interest rates is essential, but must be earned through rigorous, transparent decision-making.
Bunds are firmer this morning by around 15 ticks, and currently trade towards the mid-point of a 125.90 to 126.17 range. German paper appears to be benefiting from lower energy prices. On the yield front, the curve is lower across the horizon, but with the long-end underperforming. It seems to be the view of bond traders that the Middle East situation has only near-term implications, with 10yr yield action fairly sideways in the past week or so. Ahead focus will be on a 2028 Schatz auction; analysts at Danske Bank highlight that the demand for German debt has been soft in recent auctions.
Gilts are currently trading with losses of around 30 ticks, and hold within a 87.83 to 88.42 range. In recent days, domestic politics has taken a bit of attention away from the Middle East situation. The latest update came from the Former UK Foreign Ministry Official Olly Robbins, who said that the Cabinet Office suggested that Mandelson should not be vetted at all, and this was overruled by the Foreign Office. A comment which does not play in favour of PM Starmer, who has managed to shrug off some of the recent pressure he has faced. A little bit of downside was seen in Gilts at the time, but Robbins’ comments came in close proximity to geopolitical updates, which weighed on the broader complex. On the data front, UK unemployment rate fell to 4.9% (exp. 5.2%, prev. 5.2%); which would be welcomed at the BoE.