[MARKET ANALYSIS] Fixed firmer as Monday's hawkish repricing unwinds

• A bullish start for fixed, as the complex continues to unwind the energy-induced sell-off from the start of the week.
• This morning, the action is most pronounced in Gilts as they catch up to the late Monday commentary from Trump, that the Middle East conflict could be over soon. Gilts gapped higher by 57 ticks, eclipsing the 91.00 handle before continuing to a 91.39 peak, taking out Friday's 91.25 best. If the move continues, there is a bit of a gap before the 92.00 mark and then a cluster of levels just above.
• Given this, yields have pared notably. The UK 10yr notched a 4.79% peak yesterday, its highest since 4.86% from the 3rd of September 2025. This morning, the 10yr has been as low as 4.53%. A move that is also visible in market pricing, with around 5bps of easing now implied for March vs essentially 0 yesterday.
• Bunds are bid, even though the benchmark lifted by over 50 ticks late Monday on the Trump interview. Currently, firmer by 33 ticks but around 25 off a 127.53 peak. Similarly to Gilts, a bit of a gap now before the 128.00 mark and then a cluster of recent levels above.
• For the ECB, the action has helped markets to calm from the extreme pricing adjustments on Monday. Where, at one point, two 25bps hikes were priced. Currently, around 20bps of tightening is implied by end-2026, vs. c. 7bps this time last week.
• Finally, USTs are firmer by 10 ticks and at the top of a 112-14+ to 112-24+ band. Continuing to grind higher as energy benchmarks remain under pressure. The US day ahead is primarily a waiting game for any further administration updates on the timeline of the conflict, in addition to a 3yr tap.

The fixed income market is rebounding as the initial hawkish sentiment from earlier this week unwinds, particularly driven by developments in the Middle East. Gilts are leading this recovery, with notable moves in yields as traders recalibrate expectations following Trump's comments, suggesting a potential resolution to conflict. This implies a shift in market sentiment, with easing expectations reflected in future rate pricing for both the UK and Eurozone, influencing overall fixed income dynamics.