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[MARKET ANALYSIS] Yields continue to climb as energy ascends, ECB and US PPI ahead

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[MARKET ANALYSIS] Yields continue to climb as energy ascends, ECB and US PPI ahead

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  • Despite a slightly firmer start for Bunds and USTs, as energy took a relative breather in late-APAC/early-European trade, fixed has reverted into the red and continues to falter as energy climbs once more with Brent above USD 102/bbl.
  • USTs are once again below the 107-00 mark, and to an incremental WTD base of 106-30+, which is also a contract low. Amidst this, yields are marginally firmer across the curve, with the 2yr to a 4.41% peak and the 10yr to 4.86%. Aside from the energy move, upside is a function of participants digesting commentary from President Trump at the RNC where he pledged a USD 5k dividend following a strong mid-term performance; while unlikely to occur, as it would need Congressional approval, the payment would cost in excess of USD 1tln and add further pressure to already strained public finances.
  • Today, for the US, the docket is dominated by PPI and weekly claims. Note, the PPI release comes ahead of Friday’s CPI, which could well define the outcome of the September Fed. Thereafter, we look to supply and given, counterintuitively, the upside seen in yields on the Treasury buyback announcement on Wednesday, the 30yr tap today may garner extra attention. For reference, the 10yr (after the buyback announcement) was very strong, with the mentioned yield move beforehand potentially providing some additional concession into it.
  • Bunds also lower, by just over 20 ticks at a 121.11 base, matching the low from Wednesday. Specifics for the region light, no move to final CPI earlier. Ahead, the docket is dominated by the ECB. A hike is widely expected, but the decision may not be a unanimous one. Additionally, we look for any deviation in the statement and/or Lagarde from the data-dependent, meeting-by-meeting approach, to a potential hawkish tilt given recent developments. On this, the 2027 & 2028 HICP forecasts will be key. However, recent moves in crude and TTF mean they are likely already somewhat stale and the expected upward revision to the forecasts is perhaps not sufficient. Something that may be elaborated on by Lagarde.
  • Gilts opened lower, catching up to the initial energy upside seen before the APAC stabilisation. Since, as energy climbs once more, further pressure has emerged to an 84.91 contract low. The narrative for the UK remains the same, with every uptick in energy being seen across yields and adding to fiscal concerns ahead of the first Burnham budget, a dynamic that arguably threatens to become a doom-loop for yields. Currently, the 10yr yield is just below the recent multi-year 5.29% peak, while the short-end continues to climb and the 2yr has hit 4.73% and counting, firmer by 3bps on the day.

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