[MARKET ANALYSIS] Fixed income futures off best levels as energy drifts higher

UST futures were initially on a firmer footing but are currently flat intraday between 110-07+ and 111-17+, largely moving in tandem with oil prices amid a lack of fresh catalysts Friday morning. Earlier gains were limited after the recent choppy performance and curve flattening on hawkish central bank expectations in response to the Iran war, while overnight price action was also contained by the absence of cash Treasuries trade due to the holiday closure in Tokyo.
Bund futures trades flat in the European session and off earlier best levels, with upside contained following hawkish ECB reports yesterday, which noted officials see the need for possible rate hike talk to start in April, but added that a move would be more likely in June. Several ECB speakers hit the wires today – most members suggested a meeting-by-meeting approach, whilst ECB’s Nagel said the ECB would need a hike in April if the price outlook sours, and will act with necessary resolve. Bunds trade within a 125.86-126.27 range at the time of writing.
Gilt futures opened with modest gains but then dipped into the red, albeit within contained ranges between 88.38-88.46, with weakness likely emanating from increased expectations of a more hawkish BoE following yesterday’s unanimous vote to keep rates unchanged, with traders now fully pricing in roughly 50bps of rate hikes by the end of 2026 to combat these renewed inflationary pressures.