[MARKET ANALYSIS] The Fed keeps USTs underpinned, EGBs await the ECB, Gilts continue to climb post-budget

• Fixed benchmarks in the green, benefitting from the lack of hawkish surprise from the FOMC, despite the two hawkish dissenters. Otherwise, focus this morning swiftly returned to geopolitics, amid VP Vance’s mediation efforts; however, a recent Semafor report poured cold water on Vance’s efforts, though with current US focus on mediation, while strikes remain an option post-Midterms.
• USTs just off best in 105-26 to 106-07 parameters, firmer by around 10 ticks as things stand.
• Bunds firmer by 30 ticks, holding at the upper end of 121.96 to 122.21 parameters into the ECB; Newsquawk preview available. This morning, action has been in tandem with USTs, and also a function of the pullback in Dutch TTF thus far, benefiting from constructive commentary from officials and energy desks.
• Gilts in-fitting, and seemingly taking the lack of hawkish surprise from the Fed as an excuse to pare back on market expectations around the BoE a touch, which are widely regarded as being too hawkish. Additionally, the lack of mistakes from Chancellor Healey during Wednesday’s budget is supportive, despite criticism from the various business bodies thereafter. Further, while he has kicked a welfare review into 2027, he continues to express an openness to cutting spending, to some degree at least. Points that are supporting the space, to an 85.58 high, the highest since the final week of September.

A rates day of the familiar kind: the Fed meeting passing without a hawkish surprise tends to leave USTs supported even with dissenting votes on the hawkish side, and the pattern in past cycles has been for the front end to rally on the absence of bad news rather than the presence of good. EGBs trading in tandem with USTs ahead of an ECB decision is the standard pre-meeting correlation; the distinction worth drawing is whether the bid holds through the press conference, since in comparable episodes the cross-market impulse has faded once the domestic central bank reasserts its own path, and the TTF pullback is doing real work here as the energy leg of the inflation channel. Gilts are the more idiosyncratic story: a budget that avoids mistakes has historically been enough to compress the UK risk premium, and the market treating benign Fed outcomes as cover to pare BoE pricing that was seen as too hawkish is a well-worn sequence. The follow-ons are the ECB itself, whether Gilt strength survives scrutiny of the deferred welfare review, and whether the dissenter split at the Fed becomes the committee's centre of gravity or remains its tail.