[MARKET ANALYSIS] Fixed income faltered briefly as energy ticked higher, but has since found a firmer footing

An initial modestly firmer bias gave way to relatively flat performance, but with a negative skew from the renewed, but brief, upside in Brent and WTI. More recently, that upside has waned, with fixed benchmarks now picking up a touch, taking USTs into the green by a few ticks. The US day is mainly counting down to the FOMC on Wednesday. That aside, the Israeli election is of potential note (exit poll due at 20:00GMT), in case it results in an approach-change to the Middle East conflict. Bunds in-fitting with USTs, but with some very modest outperformance, as while the upside in the global energy benchmarks has weighed, Dutch TTF has pulled back slightly from the marked upside on Monday, providing some relative relief. At the time of writing, Bunds hold above the 122.00 handle in 121.96 to 122.23 parameters. OATs take a bit of a breather from the rally on Monday, currently lower by about 30 ticks vs upside of around 80 ticks overall that session. As such, the OAT-Bund 10yr yield spread is around 7bps wider, erasing roughly half of the tightening on Monday post-Moody’s. Finally, Gilts opened with gains of 13 ticks, before climbing another 31 to an 85.43 peak. Upside driven by the minimum wage reporting being digested, a lift that mechanically provides Chancellor Healey with a significant headroom win. Since, as energy picked up across the morning, this strength has waned somewhat.