[MARKET ANALYSIS] Fixed income hit by geopolitically driven energy rebound, and counting down to the US midterms

A modestly bearish session for the space. USTs are lower by a handful of ticks in 106-21 to 106-27 parameters. In short, we await the start of the US Midterms (Newsquawk preview and dashboard available), while on the lookout for any further geopolitical updates after Monday’s limited kinetic action and the commentary from Iran. To recap, the US targeted Qeshm Island in a limited strike, aimed at preventing Iran from aggression within the Strait of Hormuz. Since then, sources report that while Qatari mediators were involved in recent days, the Iranian assessment is that a return to war is the most likely scenario; though political figures within Iran are reportedly pushing for a de-escalation. Amidst this, EGBs react to the energy upside, posting pressure of about 10 ticks currently but some 20 off a 122.37 base for Bunds. Pressure that is seemingly a function of the moves seen in global energy benchmarks, and specifically Dutch TTF, which is bid by c. EUR 2/MWh. No reaction to the morning’s ECB speak, which has stuck to the script. Gilts, as is often the case, underperform amidst this energy move. Lower by 35 ticks at the time of writing, but some 15 clear of the 85.85 base and holding around the 86.00 handle. UK specifics focused on the government's EU relationship, ahead of the EU-UK summit, with reports suggesting some progress has been made on various points; however, PM Burnham has clarified that he is not proposing the return of freedom of movement. A point the EU is particularly attached to.