[MARKET UPDATE] Fixed benchmarks pull back from highs as traders digest a seemingly "fragile" ceasefire

Global fixed benchmarks are trading flat to lower, as benchmarks pull back from the extremes seen on Wednesday, and as traders begin to find holes within the current ceasefire agreement. This comes after Iran’s Parliament Speaker Ghalibaf said three clauses of the 10-point plan have been violated so far, and as such, a bilateral ceasefire or negotiations is unreasonable. Another interesting point is that Iran introduced controlled shipping routes and coordination with the IRGC, effectively shifting from free transit to monitored flows—raising risks of disruptions and bottlenecks. (Full details on the Newsquawk headline feed). This, alongside continued strikes on both Lebanon and Iran, has led to a rebound in the energy complex, once again renewing inflationary concerns.
USTs are currently flat, and mildly outperforming vs peers – currently trading within a 111-04+ to 111-10 range, and have entirely reversed the initial ceasefire-related optimism. Much of the action facilitated by the geopolitical factors mentioned above, but the complex is also weighed on by hawkish-leaning FOMC Minutes and heading into a 30yr auction later today. On the data front, markets will await weekly claims, February’s PCE data (exp. +0.4% M/M vs prev. +0.3%) and core PCE (exp. +0.4% M/M vs prev. +0.4%); final Q4 GDP stats. From a yield perspective, the 2yr has rebounded back towards 3.785% (vs Wednesday’s trough at 3.713%).
Bunds are in the red and down by around 50 ticks at this stage, and holding towards the bottom end of a 125.72 to 126.10 range. German paper did dip a tick below the high from 7th April, with market participants highlighting 125.53 as a potential area for intraday longs to be exited. Bunds are moving at the whim of energy prices this morning, but there have been some domestic updates. An interesting comment via Italy’s PM Meloni got some attention, after she suggested that the EU should consider a temporary suspension of budget deficit rules if the Iran war persists. No move in EGBs at the time, but traders will remain cognizant of any fiscal related concerns, should a suspension be enacted. From a data perspective, Industrial Production printed at -0.3% (exp. +0.9%), highlighting the turbulent recovery of Germany – even before the Iran war started.
Gilts are underperforming vs peers, after leading the fixed complex on Wednesday. As above, moving at the whim of energy prices, with UK-specific newsflow light. UK 2yr has rebounded back towards 4.237% (vs trough of 4.044% on Wednesday). UK paper currently trades within an 89.20 to 89.61 range; further pressure could see a breach below the 89.00 mark, and then the high from 7th April at 88.88.