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[MARKET ANALYSIS] Fixed falters slightly as energy climbs into a packed week

This analysis indicates a cautious start for fixed income markets, impacted by rising energy prices and mixed geopolitical updates as traders await multiple central bank meetings this week, particularly from the BoE, ECB, and Fed.

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Iran suspends exports of steel slabs and sheets until 30th May, Iranian media reports

Hezbollah outlines that they will be keeping their weapons, and dismisses the prospect of direct talks with Israel regarding Lebanon

[MARKET ANALYSIS] Fixed falters slightly as energy climbs into a packed week

China has blocked the acquisition of Manus, Bloomberg reports

[MARKET ANALYSIS] Equities suffer from higher oil prices, Adidas +1.5% after the London marathon, Cint Group +32% on a takeover bid

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  • A softer start to the week, as energy upside lifts yields and weighs on fixed benchmarks. However, the magnitude of fixed action is relatively limited amid mixed geopolitical reporting, awaiting supply and the week's packed central bank agenda, which includes the BoE, ECB & Fed.
  • USTs as low as 111-01, with downside of 5+ ticks at most. If the move extends, we look to 110-27+ and 110-26+ from Friday and Thursday, before attention then turns to 110-22+, 110-17+ and the 110-16 MTD low from earlier in April. The US agenda is, aside from geopolitical updates, headlined by 2yr & 5yr note supply ahead of Wednesday's Fed. Note, much of the US news cycle is dominated by the shooting incident at the weekend's White House Correspondents' Dinner.
  • On the subject of geopolitics, weekend updates were mixed after reports of an Iranian three-step plan, but also the US cancelling the delegation's visit to Pakistan. Nonetheless, Axios outlined that the US received a better plan, and President Trump is expected to host a situation meeting today. No firm press appearances from him, aside from a 14:00BST pool call and then the meet and greet with King Charles.
  • A visit designed to bolster UK-US relations. Foreign Secretary Cooper has been sent to discuss trade matters, though no formal meeting with POTUS appears to be scheduled. Domestically, the news cycle remains firmly focused on PM Starmer, particularly as we count down to the May 7th local elections and as the opposition pushes for a Privileges Committee investigation. In brief, the main press reports have been Burnham making the case for a Granita-style pact with Rayner, according to The Telegraph, while the FT outlines that Chancellor Reeves will push for further fiscal responsibility after the 7th, in a bid to provide reassurance following the expected losses.
  • Gilts gapped lower by 23 ticks and then slipped another 12 to an 87.13 low. Modestly underperforming peers, given the above. Elsewhere for the UK, we count down to Thursday's BoE, a hold is expected and priced, with attention on any clues via the statement, forecasts, or individual Committee members' remarks as to when a move might occur. Currently, markets imply 25bps hikes in July (+30bps) and December (+54bps).
  • Bunds in-fitting with the above. Somewhere between USTs and Gilts in magnitude. As low as 125.48, posting losses of 17 ticks at most. Driven by the above geopolitical developments. No move to a weak GfK survey for May, as consumer sentiment was hit again by the Middle East conflict, resulting in a sharp decrease in income expectations and the 12-month view moved to a level similar to April 2022, at the start of the Ukraine conflict.
Context

The recent weakness in USTs and Gilts suggests a limited tolerance for further declines, with evolving geopolitical developments potentially influencing market sentiment and central bank guidance around rate expectations.

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