[MARKET ANALYSIS] Global fixed benchmarks are flat/incrementally firmer, Gilts find reprieve after recent pressure

Global benchmarks are incrementally firmer/flat this morning as crude benchmarks pull back from recent highs, and as geopolitical/political newsflow remains light.
USTs are firmer by a couple of ticks and currently trade within a narrow 109-31+ to 110-04 range, but ultimately residing near the prior day’s trough at 110-01. As a reminder, US paper was pressured on Tuesday amidst higher energy prices and after a hotter-than-expected US CPI report, which has led markets to reprice hawkishly. Most recently, UBS pushed back its call for a cut at the Fed to December 2026 and March 2027 (prev. forecast cuts in September and December).
Focus today will be on the US PPI report this afternoon, which is expected to show the headline at 4.9% Y/Y (prev. 4%), rising 0.5% M/M (prev. 0.5%), and core PPI is seen rising to 4.3% Y/Y (prev. 3.8%). In the midst of all this, attention remains on the geopolitical front, with newsflow recently fairly light. A full recap can be found on the Newsquawk feed, but in brief, Trump recently said that they are going to make a good deal with Iran – and will discuss the matter with his Chinese counterpart. Heading into that meeting, China and the US have reportedly held in-depth and “constructive” talks in South Korea.
Bunds are essentially flat in a quiet 124.59 to 124.87 range. Earlier this morning German Wholesale Prices M/M topped expectations, with the Y/Y figure also rising from the prior. The statistics office cited the war in the Middle East as the region for the jump in prices, “particularly for energy products and raw materials”. Despite the jump in prices, Bunds were choppy but ultimately little moved. Thereafter, EZ GDP 2nd estimate was not subject to revisions, whilst Employment Change Q/Q fell from the prior.
Gilts initially gapped higher at the open, peaking at 86.31, as UK paper found some reprieve following on from a dire session seen in the prior session; traders may have also priced in the chance of quiet domestic politics, ahead of the King’s speech. However, since the cash open, UK paper has gradually trundled lower and is now only firmer by a handful of ticks – conforming to the action seen across peers. From a yield perspective, the 10yr remains above the 5% mark and a little short of the peaks made on Tuesday (5.13%).
Markets remain on watch for domestic politics, and particularly on Wes Streeting after his short meeting with PM Starmer – UK journalists are questioning whether this signals increased likelihood of a potential leadership challenge. Before the duo met, Sky News reported that UK government whips believe Wes Streeting will make his move on Thursday, to avoid clashing with the King’s Speech, while they also believe Andy Burnham doesn’t have an MP ready to quit.