[MARKET ANALYSIS] Global fixed benchmarks trade cautiously awaiting President Trump and more US-Iran updates

Global fixed benchmarks are currently mixed, with USTs flat whilst Bunds and Gilts continue to build on recent strength. The geopolitical environment appears to be easing, with traders now digesting President Trump’s latest comments, where he stated that he views the war as being very close to over, adding that he does not think it will be necessary to extend a ceasefire. Given the generally positive mood music, crude prices remain at recent lows, reducing inflationary implications on the economy for the time being. Markets await further commentary from POTUS at 11:00 BST.
USTs are currently flat and hold within a 111-15+ to 111-21 range. From a yield perspective, the US 2yr remains around near-term lows at 3.755%, but still a far cry away from pre-war levels at around the 3.50% mark. Overall, markets remain cautiously optimistic amidst reports of a second round of talks between the US and Iran.
Geopols aside, import/export prices, the NY Empire State Manufacturing Index, the Fed’s Beige Book, TIC/foreign bond investment data are due. On the speaker slate, Fed’s Barr, Bowman and Hammack are all on the docket.
Bunds are firmer by c. 15 ticks, but off the morning’s highs, to trade within a 125.43 to 125.68 range. Further pressure in German paper could see a breach below Tuesday’s close at 125.32, and then 125.21 (50% fib of Tuesday’s move). Early action saw the benchmark move lower, which came alongside a gradual pick-up in energy prices - perhaps some early positioning heading into a 2052 & 2056 Bund auction later (Preview on Newsquawk headline feed). From a yield perspective, the GE 2yr oscillates around near-term troughs at 2.53%, but well off the levels seen pre-war. UniCredit analysts highlight that following the US-Iran ceasefire announcement, the German 10/30yr spread has bull-steeped and is currently trading at 56bps, 14bps higher than the recent trough. Despite the recent hopes of an end of the conflict, the analysts do not see the spread returning to the pre-conflict 67bps anytime soon.
Gilts gapped higher by 30 ticks, briefly extended to a peak of 89.31, before scaling back off those levels as the morning progressed to make a trough of 89.06. As above, Gilts moved higher on the geopolitical optimism, before moving off best levels alongside peers. In terms of the BoE, money markets currently assign no chance of a hike in April, and fully price in a 25bps hike in September – ultimately, markets remain cautious about the inflationary implications of the Iran conflict, despite signs of easing tensions. Focus today will be on BoE speak from Greene (15:15 BST), and Bailey, the latter slated to speak twice; in recent commentary, the Governor believed markets were “getting ahead of themselves by pricing in rate hikes”.