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[MARKET ANALYSIS] Thin conditions for fixed with numerous regions away, lows hit on Iranian rhetoric

Thin market conditions are exacerbating a slightly bearish start as we see USTs dip following Iranian rhetoric, which could create ripple effects across energy and inflation expectations.

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[MARKET ANALYSIS] Crude lifted on escalatory Iranian rhetoric and ahead of Trump's speech, energy gains dent XAU

ECB's Simkus says it is clear that they have deviated from the baseline scenario

[MARKET ANALYSIS] Thin conditions for fixed with numerous regions away, lows hit on Iranian rhetoric

ECB Survey of Professional Forecasters (Q2'26): Headline and core HICP inflation revised up in the near term, while remaining unchanged further out

EU S&P Global Manufacturing PMI Final (Apr) 52.2 vs. Exp. 52.2 (Prev. 51.6); "Over the two months since the war started, the jump in input cost inflation has been far larger than anything previously recorded..."

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  • A slightly bearish start to the week, though conditions are thin on account of holidays in China, Japan and the UK. 
  • USTs down to a 110-15+ trough this morning, hit by an uptick in energy, which reverberated through on a wider airing of comments from Iran regarding the US' activity around Hormuz. At most, USTs have been lower by 5+ ticks. Ahead, we await remarks from Fed's Williams and then the financing estimates ahead of refunding later in the week.
  • From Williams, we are attentive to his view on forward guidance after several Fed members, including three voters, objected to language implying the next move would be a cut. In his most recent remarks, Williams described policy as modestly restrictive and well-positioned, adding that the Middle East conflict was already lifting inflation.
  • Bunds are in-fitting directionally, though in a slightly wider range and with modestly greater pressure on catch-up from the long weekend. Hit a 125.09 base with losses of 27 ticks at most, bottoming alongside the above move in USTs. No real reaction to the region's Final Manufacturing PMIs, or the latest ECB SPF, which saw near-term inflation revised up but the longer-term view maintained.
Context

Fed officials, particularly Williams, could provide critical insights on forward guidance, especially in light of the dissent regarding rate cuts. Investors should stay focused on his comments, as they may influence fixed income markets amidst an already volatile week.

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