[MARKET ANALYSIS] Fixed income falters as energy climbs and pricing turns ever more hawkish

A bearish session for fixed benchmarks, pressure stems from the weekend's geopolitical escalation, which has once again lifted energy prices. Furthermore, given those moves and a continued hawkish assessment of Central Bank expectations, yields are on the up.
Specifically, US yields are firmer across the curve in bear-flattening action as the short-end very much leads. The 2yr has peaked at 3.99%, its highest since August 2025 when 3.999% printed; thereafter, we look of course to the figure and then the 4.424% 2025 peak.
Action that has pushed USTs to a 110-04+ contract low. For the Fed, we continue to see a hawkish reassessment, though, unlike global peers, a hike is not yet fully priced in 2026. As it stands, pricing peaks in October with c. 20bps of tightening implied.
Bunds are lower, at a 124.80 base with losses of near 50 ticks at most. The story is much the same as above. For the ECB, pricing is much more extreme with three 2026 hikes currently fully priced and at extremes this morning a 50/50 chance of a fourth hike. As a reminder, the ECB's baseline forecasts were based on market pricing as of the 13th, around which point around 40bps of tightening was implied.
For the BoE the dynamic is even more extreme, with 100bps of 2026 tightening implied by end-2026. For Gilts, the benchmark opened with losses of 63 ticks and then slipped almost another 50 to a 86.07 trough.
For EGBs, it is worth noting that the weekend's political updates relating to Germany and France would typically be of note for the complex, but in today's energy/Central Bank-driven market, the pertinence of the results has been significantly diminished.
In terms of spreads, the BTP-Bund 10yr yield spread has eclipsed 100bps for the first time since June 2025 when 102.4bps printed.