[MARKET ANALYSIS] Fixed falters amid an energy resurgence

• A bearish session for the space, after being relatively contained overnight despite the incremental upticks in energy seen after POTUS commentary and the general lack of progress.
• However, the bias became much more apparent in the early European morning, as energy lifted from a maritime incident in Bab al-Mandab (see Commodities for more details). Amidst this, USTs fell from 108-09 to 108-04, lower by 7+ ticks at most.
• Bunds and Gilts follow suit directionally, down to lows of 124.28 and 86.33 respectively. Lower by 21 and 53 ticks, respectively. The docket for both is light, aside from supply from Germany due imminently, and as such further direction will come from geopolitical updates, before we turn to US inflation data later in the week.

Supply-side energy shocks of this kind have a well-worn transmission into core rates: crude strength lifts near-term inflation expectations, steepens the breakeven leg against nominals, and pressures duration across USTs, Bunds and Gilts in tandem, with the long end of each curve typically bearing the move. Maritime incidents in chokepoint waters are a recurring template; the historical pattern is an initial risk-premium pop in crude and freight/insurance costs, followed by fade if flows are undisrupted, or persistence if retaliation or rerouting follows. The relative underperformance of Gilts against Bunds and Treasuries is consistent with prior episodes, where the UK's heavier index-linked issuance and sensitivity to energy pass-through into administered prices has amplified the inflation repricing. The light data calendar leaves positioning as the main tell: how German supply is absorbed under these conditions will say more about underlying demand than the morning's tick moves. The week's US inflation print is the pivot; past episodes of this kind have seen geopolitically driven yield moves either cemented or unwound depending on whether the data corroborate the inflation impulse.