[MARKET ANALYSIS] USTs await US CPI, EGBs & Gilts just in the red

• USTs flat into US CPI for July. Currently, in a 108-13+ to 108-17+ band. Today’s data is of note after the particularly weak NFP report last week, which saw a pullback in near-term tightening expectations leaving September essentially a coin-flip, as it stands. However, before the September Fed we get PPI, PCE, Jackson Hole, August NFP and then the August CPI series.
• Currently, CME pricing has September evenly split between a hold and hike; a 37% chance of a hold in October, 50% to a 25bps hike and just over 12% implied probability for a 50bps move. By end-2026 (i.e. December’s meeting) there is a 21% chance of the Target Rate still being at 3.50-3.75%, 45% probability of one 25bps hike, 28% chance to two and around a 5% likelihood of 75bps worth of tightening.
• EGBs devoid of specific catalysts in conditions more typical of summer markets. Bunds in a very narrow 124.63-78 band, and unchanged in that. Gilts started with a little more pressure, opened lower by 24 ticks at 87.00 before paring around half of that and now trading in-line with EGBs.
• Aside from CPI, the docket also features German and US supply. As a reminder, Tuesday’s 3yr auction was strong, though not as well received as the last outing.

Pre-data sessions of this kind have a familiar shape: ranges compress into the print, volumes thin out, and the real positioning reveals itself only in the release aftermath, particularly when, as here, the policy question is two-sided with near-term meeting pricing split between a hold and a hike. The unusual feature is the direction of the debate: a weak labour print pulling back tightening expectations inverts the more common pattern of inflation data threatening to add hikes, and in past stop-start tightening cycles that configuration has made the front end acutely sensitive to any upside surprise in the price data, since it forces a rapid rebuild of pricing that had just been unwound. The sequencing matters as much as the print itself: PPI, PCE, a second labour report and the summer central bank symposium all sit between this release and the meeting, so history suggests a single CPI rarely settles the September question on its own and partial retracements of the initial move are common. The contrast between the catalyst-rich US session and a directionless European one is typical of summer conditions, with Bunds and Gilts tending to take their cue from the US impulse rather than domestic drivers, and Gilts' early weakness consistent with their habit of underperforming on days when the domestic story is thin. Supply is the other live channel: the reception of German and US auctions after a strong but softer-than-prior 3yr sale is the tell for how much duration the market will absorb at these levels.