[MARKET ANALYSIS] Fixed income benchmarks hold a negative bias as energy rises

Fixed benchmarks are mixed, but the bias throughout the European morning is negative. USTs are stronger (given the lack of settlement on Monday), Gilts play catch-up to peers (given Monday’s Bank Holiday), whilst Bunds move lower. To recap recent geopolitical updates, strength in fixed benchmarks was facilitated by the weekend's geopolitical positive updates, in which reports suggested that the US-Iran were nearing a deal. However, the complex then waned from overnight highs amidst reports of the US conducting “self-defence” strikes near Bandar Abbas. The move further exacerbated in European hours after the Iranian Supreme Leader said that America no longer has a safe haven in the Middle East, adding that the region will no longer serve as a shield for US bases. Another bout of strength was seen after the IRGC verbally responded to the recent US strikes, suggesting that it has the right to respond to any US ceasefire breach.
Markets now remain attentive to whether Iran decides to physically retaliate against the US’s strikes, or whether a deal between the US and Iran can be ironed out. Geopolitics aside, the US data slate includes the Chicago Fed National Activity Index, CB Consumer Confidence and the Dallas Fed Manufacturing Index; in Europe, ECB speak from Sleijpen will be in focus.
USTs are firmer by c. 14 ticks, but off c. 10 ticks from Monday’s highs; currently trading within a 109-17 to 110-00 range. Elsewhere, Gilts are firmer by around 35 ticks and ultimately playing catch-up to the gap higher seen on Monday; UK paper trades within the 88.28 to 88.70 range. Finally, the German paper has moved lower this morning, given the positive bias seen in the crude complex. Bunds currently off by around 25 ticks and within a 125.99 to 126.07 range. Earlier, hawkish speak from Schnabel failed to move Bunds; she noted that the Bank should raise rates in June, even if a peace deal with Iran is struck.