[MARKET ANALYSIS] Fixed income off worst levels with a busy data and speaker slate ahead

Fixed income benchmarks initially fell at the open, as energy prices rose and a re-escalation of US-Iran tensions, but have come off worst levels at the start of European cash trade. Over the weekend, US forces struck 140 Iranian military targets on Saturday and took further action on Sunday, while Iran attacked US bases in the Gulf and announced that the Strait of Hormuz is closed.
USTs (U/C) rotate in a 108-26+ to 109-01 range, with yields falling a touch from 4.60%. Geopols aside, focus will be on US inflation and Fed Chair Warsh's testimony to Congress. On the inflation print, headline inflation is expected to fall to 3.8% Y/Y from 4.2%, while the core figure is expected to hold steady at 2.9%. On the Fed speaker front, Fed's Waller is slated to speak later today, while a flurry of speakers are expected throughout the week. In terms of market pricing, the October meeting is the first fully-priced hike by the Fed, with a further hike fully priced by Apr'27.
Bunds (-7 ticks) fell to a trough of 125.20 before coming off their lows, currently trading at session highs of 125.51. The data front from the EZ is quiet, with final inflation figures across the euro area slated for the week. On the supply front, the EU is to sell 3-, 7-, and 15-year Bonds. The sale should go fine, with the 3-year to receive decent demand.
Gilts (-25 ticks) underperform. There has been plenty of political news over the weekend: 1) Burnham is considering a big budget in November, 2) a review of the Help to Buy scheme is on the table from Burnham, and 3) Chancellor Reeves to focus on AI opportunities at her Mansion House speech. The November budget will be highly-watched, as usual, with allies and experts reportedly pushing Burnham, who is set to become PM on July 20th, to consider a land tax, greater public control of utilities and a more ambitious devolution strategy. Some of the underperformance can be explained by the strength in the crude complex, given the UK's high reliance on external energy.