[MARKET ANALYSIS] Global benchmarks benefit from lower energy prices, JGBs outperform following a solid 10yr auction

Global fixed benchmarks are stronger across the board, facilitated by a pullback in energy prices after some positive-leaning geopolitical newsflow. In brief, President Trump suggested that talks with Iran are continuing at a rapid pace, adding that he thinks an agreement will be made with Iran to extend the ceasefire over the next week. On the Lebanon-Israel front, the POTUS said that there will be no Israeli troops going to Beirut – adding that Hezbollah has agreed that all shooting will stop. Nonetheless, recent reports have suggested that South Lebanon was targeted by Israeli airstrikes this morning – potentially complicating the path to a US-Iran ceasefire, given Iran’s hardline support for Lebanon.
As for price action, USTs benefit from the lower energy prices this morning, with gains of c. 8+ ticks at pixel time; currently holds at the upper end of a 109-22 to 109-30 range (vs Monday’s trough of 109-09+). From a yield perspective, rates at the belly of the curve are underperforming vs short-dated rates, signalling that traders remain uncertain about near-term geopolitical progress. The 10yr (4.43%) now resides back towards recent troughs, and another leg lower could see a test of the low from 12 May at 4.41%. Focus ahead turns to US JOLTS.
Bunds (+50 ticks) and Gilts (+52 ticks) also extend higher, following the geopolitical risk tone, and with domestic factors for the respective regions lacking. However, there is some focus on reports that the Trump admin is eyeing nuclear bases near Russia’s border. No move on the story so far, but there is a chance of escalation between NATO and Russia. Bunds hold at the upper end of a 125.97 to 126.27 range, whilst Gilts hold near peaks of 88.37 to 88.54.
JGBs (+84 ticks) are outperforming vs peer, boosted by the geopolitical tone and a solid 10yr Japanese auction. Whilst the b/c and avg. yield were not so good, the lowest accepted price fell to 98.01 (prev. 98.86), indicating some solid demand for the paper. The 10yr knee-jerked higher following the sale, before then gradually moving higher as other investors also bought debt. As it stands, the 10yr (2.57%) now resides at levels not seen since 13 May 2026. Following the auction, MUFG’s Koguchi said “it is questionable whether this momentum will last for a long time. Given the pace of inflation in Japan and potential growth, the 10-year yield looks low”.
The near-term focus for Japan remains on three main factors: 1) the Middle East situation, 2) Japan’s supplementary budget, which is set to be an extra JPY 3.1tln, 3) reports that Japan is considering a sales tax cut in April 2027. On the latter point, attention will be on how PM Takaichi aims to fund the tax cut. Some will also question whether this is politically feasible, given that the rate will return back to its initial level, making it an unpopular policy amongst households.