Global Rates: Energy priced and UK politics drive Bunds and Gilt yields higher

What the desk is arguing

Energy price surges, linked to geopolitical tensions, are pushing up Bund and Gilt yields as markets reassess inflation persistence. The podcast notes that UK political events this week add a layer of uncertainty, further pressuring long-end rates. The desk implicitly rejects the notion that central banks can ignore these supply-side shocks, suggesting a more hawkish repricing ahead.

Supporting evidence includes the sharp moves in oil prices and the spillover into breakeven inflation rates. The UK's political instability amplifies the gilt selloff, creating a divergence from Bunds despite common energy drivers. The counterfactual dismissed is that rate markets have overreacted—JPMorgan believes the move is fundamentally justified.

Where it sits in our coverage

Our consensus target for EUR/USD stands at 1.075, with a range of 1.04 to 1.12. This view aligns with JPMorgan's assessment that energy-driven inflation will keep ECB policy tight, supporting the euro. However, the Gilt selloff could weigh on GBP, a divergence we monitor.

Specific firms: - JPMorgan: target 1.10 for Mar26 - aligned - Barclays: target 1.08 for Mar26 - aligned - Goldman Sachs: target 1.07 for Mar26 - aligned

How other firms see it

Barclays and Goldman Sachs share a broadly aligned stance, seeing the same risks from energy prices and UK politics. Their Dec-26 targets are within our range, reinforcing the consensus that rate differentials will widen in favor of the euro.

A contrary view comes from BofA, which targets 1.04 for Mar26, arguing that energy shocks will hurt eurozone growth more than the US, weakening the euro. This divergence highlights the key risk: whether central banks prioritize inflation or growth.