[MARKET ANALYSIS] Fixed falters once again as Iran talks about potentially expanding the scope of the war

The very modest bearish action at the start of the morning has given way to downside of c. 40 ticks in Bunds. Amidst a combination of factors, namely: energy upside on Iranian commentary, hawkish central banks, strong German Ifo & trade/tariff concern ahead of the US-China meeting, and also from Germany via the VDA. Unsurprisingly, the bulk of the move was on the Iranian adviser Safavi intimating that the “scope of the war may expand…”, to include the Indian Ocean and other regions. An update that, over the course of around one hour, lifted Brent by over USD 2.00/bbl and pushed the US 30yr yield to its highest in over 20 years. Bunds hit a 119.87 trough, nine ticks above Wednesday’s contract low. As mentioned, much of the focus has been on yield action, with upside seen across curves globally and a slightly steepening bias seen. For USTs, no real move to Fed’s Williams, though he did note that pricing for another hike by end-2026 is “reasonable”. As it stands, markets imply a 38% chance of one 25bps hike by year-end, and just over a 50% chance of two. At a 104-28 contract low with yields bid across the curve. Ahead, the focus remains on central banks with several speakers due, before the Trump-Xi meeting begins and the readout which is scheduled for just after 15:00BST commences. A meeting that is framed by recent remarks from Treasury Secretary Bessent that while the truce has been extended to January 2027, he does not know if a bigger deal can be done.