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[MARKET ANALYSIS] Fixed benchmarks slightly firmer as energy prices dip, Bunds await the ECB

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South African Gold Production YoY (Apr) Y/Y -0.2% (Prev. 17.1%)

Turkish Foreign Minister says talks with Iran were nearly complete before the recent strikes

[MARKET ANALYSIS] Fixed benchmarks slightly firmer as energy prices dip, Bunds await the ECB

Japan's PM Takaichi says that she expects to secure 100% of crude in July, without passing the Strait of Hormuz

Iran says "applicants who have received a transit permit are asked to be patient and await further guidance from the PGSA", IRIB reports; repeats that the Strait remains closed until further notice

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  • Global fixed benchmarks are trading tentatively on either side of the unchanged mark. This comes amidst another US strike on Iranian military targets, which led to retaliation from the Iranians. This led energy higher overnight, but then came off best levels as CENTCOM announced the latest bout of attacks are completed. Thereafter, energy benchmarks turned negative after CNN reported that US-Iran talks are continuing. This helped global fixed paper to clamber off worst levels, with the complex generally sitting towards highs.
  • USTs (+1.5 ticks) trade towards the upper end of a 108-27 to 109-06+ range. The trough of the day was formed overnight, which coincided with the peaks in the energy complex. Thereafter, US paper clambered off worst levels, as the geopolitical environment eased. Domestically, focus will be on the US PPI report, which, together with Wednesday's broadly in-line CPI report, will be used as a key determinant for next week’s Fed policy announcement. The policy rate is unlikely to be adjusted, but focus will be on comments pertaining to the easing bias removal. Also on the docket today is a 30yr auction, which follows on from a decent 3yr outing and a strong 10yr auction. This notably comes despite the ongoing volatility and hawkish Fed repricing.
  • Bunds (+4 ticks) are trading towards the upper end of a 124.88 to 125.25 range, currently driven by events in the Middle East, though focus will come back to Europe where the ECB is set to deliver a 25bps hike this afternoon. Given markets widely expect a hike, focus will be on the accompanying statement and President Lagarde to see if/how hawkish the Bank shifts. The likelihood is that Lagarde will keep optionality; ING opines that she will want to avoid “sounding too dovish”. Focus will also be on the updated macro projections, whereby a weak growth outlook could see markets pare back further bets of tightening this year. The DE 2yr is currently holding just shy of the 2.70% mark, so any overt hawkish policy shift could see a breach above the figure, and head back towards the highs made in May at 2.75%. Thereafter, the YTD peak resides at 2.77%.
  • Gilts (-2 ticks) are essentially flat and trade within a 87.39 to 87.60 range. Ultimately, moving at the whim of geopolitical developments. Domestic newsflow has been light, with some focus on Burnham comments where he suggested he would support Waspi Women, a compensation scheme believed to cost upwards of GBP 10bln. With the UK newsflow light, Gilts will likely take leads from this afternoon’s US PPI and ECB announcement. Next week will be more interesting for UK paper, where the BoE will meet on Thursday, and then the Makerfield by-election thereafter. UK fund managers have voiced concerns that, should Burnham win in Makerfield next week, another bout of volatility in UK assets can be expected.

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