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[MARKET ANALYSIS] Fixed falters as energy climbs, Gilts lag again in catchup trade and after further hawkish impetus into the BoE

Today's fixed income markets are experiencing bearish pressure, influenced by rising energy prices and renewed hawkish signals ahead of the BoE meeting.

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[MARKET ANALYSIS] Fixed falters as energy climbs, Gilts lag again in catchup trade and after further hawkish impetus into the BoE

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  • A modestly bearish session for fixed benchmarks, initial action a function of the modest and since increasing energy upside as we count down to and participants position into a potentially risk-packed weekend. See the Commodities section for an overview of the geopolitical backdrop.
  • Amidst this, USTs post downside of a handful of ticks in a thin 110-30 to 111-03 band. Ahead, the US docket is light, and we look to next week's FOMC.
  • Bunds post slightly larger downside, perhaps as Dutch TTF has been leading oil benchmarks throughout the morning. Currently, in the red by c. 30 ticks but also in a relatively narrow 125.20-44 band. The European docket is light, aside from Italian supply (should be well received, particularly after the sizeable demand at last week's syndications); as such, price action will likely be dictated by geopolitical developments.
  • Gilts gapped lower at the open, acknowledging the pressure in fixed peers seen late-Thursday. Opened at 87.10, lower by 41 ticks. Thereafter, slipped another 28 to an 86.82 low and has held there since; the second bout of pressure spurred by further energy upside and a hawkish BoE DMP. The DMP spurred end-2026 BoE pricing to 59bps of tightening from c. 54bps this morning and significantly above the 23bps implied this time last week.
  • To recap the day's data. UK Retail Sales were strong on a headline level but in-line/soft on a core basis, with consumer motor fuel purchases driving the headline, no implications for the BoE next week (hold expected, guidance in focus). Thereafter, Germany's Ifo was soft across the board, with no real follow-through to EGBs.
Context

Gilts, in particular, are lagging as they opened lower and continued to decline, reflecting a shift in market expectations for future rate tightening. With UK retail sales data showing mixed results and geopolitical factors weighing, the outlook for fixed income remains cautious, particularly as the market processes potential policy shifts from central banks.

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