[MARKET ANALYSIS] Fixed under relatively modest pressure despite energy strength, UK pre-budget commentary in focus

A bearish start to the day, though only modestly so despite energy upside of in excess of USD 2.00/bbl. USTs hit a 104-17+ low in the European morning, just above Friday’s 104-17 base and then the contract trough of 104-14+. The main updates being the US President rejecting the Iranian proposal, but despite that he expects talks with Iran to recommence this week. From Iran, the delegation in the US reportedly has no plans to speak with the US on such matters, though Iranian President Pezeshkian has said they remain ready for dialogue. The action has lifted yields across the globe and the curve, with the US curve modestly flatter given the near-term implications for energy, inflation and by extension the Fed from the lack of concrete progress on Hormuz. The US 10yr yield remains at a c. 5.22% recent peak, with both the short- and long-end of the curve also at/near multi-year highs. Gilts opened with modest pressure given the above, though the UK focus point has been the weekend’s briefings from UK PM Burnham and, to a lesser extent, Chancellor Healey. The Chancellor added little, but we await more detail from his 12:00BST speech today. From Burnham, he outlined reform to the housing market, hinted at a tax increase to fund his social care ambitions and seemingly didn’t rule out an early election; though, on the latter, the inference is more from the tone of the Kuenssberg interview than anything he explicitly said. Net, the above has been taken in relative stride by the market, with the pressure seen in fitting with EGBs and no further bearish impulse coming from the PM’s comments. However, this has been sufficient to print a 83.99 low for Gilts, just above a recent base at 83.86 and then the 83.72 contract low. Bunds in-fitting, at a 119.34 low with downside of 10 ticks at most. Reacting to the upside seen in global energy benchmarks and further gains for TTF on the Middle East uncertainty. Action that continues to keep the ECB’s October meeting live, and increases the odds of a back-to-back hike after September’s move.