[MARKET ANALYSIS] Fixed bid across the board, but still shy of Wednesday's best
- Bid across the board, with Gilts leading as they catch up to the grinding bid seen in peers late yesterday, though benchmarks across the board remain shy of pre-Fed levels, but with Gilts by far the closest, as the dovish points dominated the BoE.
- Gilts at a 87.22 peak, firmer by c. 45 ticks. Just shy of Wednesday’s 87.32 best. As mentioned, the dovish points dominated the BoE, though the overall takeaway is still one of an extended hold with hawkish risks. Today, we get commentary from Chief Economist Pill, and while the views of the hawkish dissenter are well known, it will be interesting to get his take on Governor Bailey’s explicit pushback against moving towards a hike from the press conference.
- Bunds were unreactive to the morning’s data: French HICP and German unemployment. HICP was hotter-than-expected, while Germany’s jobs data saw an uptick in the unemployment rate. EZ Flash HICP printed in line on the headline; core was slightly mixed while the services lifted from the prior. Overall, the print fits with the narrative of the ECB moving towards a September hike.
- Leaving Bunds around 20 ticks off a 124.94 peak, but still with gains of the same amount. A peak that, like peers, is still shy of Wednesday’s 125.12 best. Ahead, the EZ docket is light and thus attention will be on broader macro events and the potential Fed dissenter appearances.
- Ahead of that, USTs are also bid by a handful of ticks, peaking at 108-21+, similarly shy of 108-26 from Wednesday. We may see explanations from Fed’s Hammack, Kashkari and/or Logan following the hawkish dissent this week.
- Finally, JGBs picked up heading into the BoJ, with upside emerging around the time of the weak Chinese NBS PMIs, where both Manufacturing and non-Manufacturing moved into contractionary territory. Thereafter, the BoJ itself extended this move in tandem with JPY pressure, as the statement was little changed while the Core CPI forecast was lowered for FY26. Ueda himself sparked some modest JPY action (see FX), though that paled in comparison to yesterday’s intervention moves. For JGBs, little action was seen apart from some modest upside as Ueda acknowledged that market functioning had improved, but did caveat that it had not yet fully recovered.
A broad, shallow recovery bid in global duration the day after a hawkish-tinged Fed meeting is a familiar pattern: the initial repricing on the decision gives way to a grind back as the dovish details and dissenting voices get digested, with benchmarks typically stalling short of the pre-meeting highs until fresh data force the issue. The leadership split here is informative. Gilts outperforming on dovish BoE elements despite an overarching extended-hold message reflects how a divided committee with explicit pushback against hikes tends to be read at the front end, and commentary from known hawks like Pill rarely shifts that unless it recruits the centre of the MPC. The ECB side shows the reverse configuration: in-line headline with firming services feeding a hike narrative, leaving Bunds lagging peers, the standard spread dynamic when one central bank's next move is priced in the opposite direction to its neighbours. JGB upside on soft Chinese PMIs followed by a little-changed BoJ statement with lowered inflation forecasts fits the established pattern of JGBs trading off domestic policy inertia plus regional growth spillovers, with market-functioning language the tell for future purchase tapering. The follow-ons that have historically mattered in this setup are whether the Fed dissenters' explanations harden or soften the hawkish read, and whether the next round of US data validates or unwinds the recovery bid.