[MARKET ANALYSIS] Global yields dip amidst lower energy prices, Gilts outperform

Global fixed benchmarks are entirely in the green and currently hold towards highs. Strength, which has been facilitated by lower energy prices after US President Trump claimed that he had a deal with Iran, and that the signing of the MoU would probably happen in Europe. However, the Iranians pushed back on this claim. The bullish bias then extended after Iran-affiliated, Mehr News, reported the details of the US-Iran 14-point MoU. This spurred another bout of pressure in the energy complex, which in-turn weighed on global yields.
USTs (+4.5 ticks) gain, and hold at the upper end of a 109-19 to 109-27 range. Action which has been facilitated by the positive geopolitical mood music, but still remains the underperformer vs peers. That can potentially be explained by the ongoing hawkish repricing at the Fed, heading to the Bank’s policy announcement next week. Elsewhere, yields are lower across the curve with underperformance in the short-end/belly; the 10yr currently holds at 4.43%, marking the WTD low. Should the geopolitical environment materially improve in the coming days, and the Strait entirely opens up, the 10yr could dip its head back towards support levels at 4.33% and then 4.25%. Do note that the 10yr resided below the 4.00% mark before the Iran conflict started.
Bunds (+55 ticks) and Gilts (+96) both follow the bullish bias, with the latter outperforming given its relatively high dependence on external energy and poor domestic growth data. For EGBs, there have been a number of ECB speakers this morning following the Bank’s decision to hike rates on Thursday. Most have echoed the comments made by President Lagarde at her presser; focus has been on a Bloomberg report, which suggested that some ECB members see another hike as soon as July.
For UK paper, the GDP release this morning indicated that the UK economy shrank by 0.1% in April, amidst the Iranian war. This will only exacerbate growth woes for some policymakers at the BoE, where policymakers are set to meet next week, expected to keep rates on hold.