[MARKET ANALYSIS] Fixed mostly contained, JGBs underperform after a poor 10yr, Gilts weighed on by energy resilience

A mostly contained European morning for fixed income, after pressure seen in APAC trade in JGBs and to extent other peers after a particularly poor 10yr Japanese auction. As mentioned, the main point thus far was the dismal Japanese 10yr auction, featuring a lower b/c but pertinently a sizable price tail. Results sparked pressure in JGBs of near 70 ticks, to a 126.36 low. Since, the benchmark has recovered for the most part, but remains lower by just over 10 ticks and as such underperforms. For reference, no move to a BoJ research paper on the JGB market, where the headline points echoed commentary from Ueda in last week’s press conference. Bunds firmer by a handful of ticks, saw some modest pressure overnight alongside the JGB move (as did USTs), but only fleeting with the fundamentals and dynamics a very different story. The day ahead for Europe is light, and thus the benchmark will likely conform to the lead from USTs around US events, and geopolitical updates more generally. At the midpoint of a relatively narrow 124.68-92 band. USTs look to a few data points, alongside commentary from Fed’s Paulson. But, action is more likely to be dictated by any geopolitical developments, after President Trump’s relatively constructive commentary on the conversations with the US; however, CBS reported that only the ongoing mediator-led talks are planned. As with Bunds, flat in a c. five tick range, holding just above the 108-10+ low. Gilts conform, opened with gains of a few ticks, and has since slipped to a 87.04 base, lower by around 25 ticks. Pressure a function of the modest strength seen in energy (despite it coming off highs in the early morning). Ahead, we look to UK suppy, where the 10yr tap will perhaps draw more focus than normal following the JGB sale, though the dynamics are very different.