[MARKET ANALYSIS] Fixed falters as energy climbs once again, Gilts lag into the TSC after an AMZN update

Despite some slight respite being found overnight, fixed income is back in the red as energy extends to fresh highs and Brent surpasses the USD 99.0/bbl handle, bringing a return back to USD 100/bbl into view. As such, yields are bid across the globe and the curve, with the UK feeling this most keenly given its energy sensitivity and after AMZN filing for GBP-denominated issuance. Continuing with Gilts, the benchmark opened higher by around 13 ticks, taking initial respite from the brief overnight pause and potentially reports that PM Burnham is set to meet with businesses next week to reassure them into the budget. However, that swiftly faded with Gilts now down by over 20 ticks and at an 85.61 base following the Amazon update. For the curve, the 2yr is 4bps higher at 4.61%, but off the 4.69% recent peak from last week. While the 10yr is c. 3bps higher, and similarly off last week’s 5.29% near 20yr peak. In terms of policy implications, insight may be gleaned from the BoE TSC, where we look to see if the explicit language from Governor Bailey at the last press conference holds, a line that, if reiterated, could provide some respite to Gilts. As a reminder, Bailey on July 30th said “do not leave the room thinking the BoE is edging towards a hike, because frankly there’s nothing in what I have said along those lines”. Bunds lower, by about 10 ticks at the time of writing and just off worst in 121.65-95 confines. Pressure a function of the discussed energy upside on Saudi and Houthi updates this morning (see Commodities/headline feed). For Germany, the docket features Green supply which should pass without issue. More pertinently, we continue to await a concrete response from Chancellor Merz on the strength of AfD, something that will become increasingly acute into more regional elections this month. Before that though, the ECB looms on Thursday, and while a 25bps hike is all but priced, the market will be keenly attentive to any dovish/hawkish signal from the statement/forecasts/presser, particularly at the short-end of the curve. USTs are also under pressure on the resumption of cash trade after the US holiday on Monday. Currently, it finds itself lower by a handful of ticks and at a 107-09+ base, approaching Monday’s 107-08 trough. The docket today features supply and updates from President Trump as the scheduled highlights; though, geopolitics may well dominate.