GERMAN AUCTION RESULTS: 2.60% Aug-35 Bund

Dovish weekend commentary from BoE Governor Bailey, pointing to the potential for easier BoE policy if the labour market deteriorates quicker than the Bank expects, followed by a softer-than-expected REC Labour market report, has driven front end outperformance.

• Gilt futures have hit fresh session highs in recent trade, after briefly piercing Friday’s low early on. Contract last +10 at 91.79.
• Bears remain in technical control and eye the July 8 low (91.42). Conversely, bulls need to clear the July 10 high (92.19).
• Yields flat to 4bp lower, pre-existing July ranges intact across the curve.
• 2s10s registers the highest level since April, 79.2bp, and is on track to register the highest close of ’25. The April 9 high (84.6bp) provides the next major upside target.
• 5s30s trades back above 140bp, with the ’25 intraday high (147.2bp) providing the next upside area of interest.
• GBP STIRs react dovishly to Bailey’s comments and the subsequent REC release.
• SONIA futures now +0.5 to +6.5, SFIZ5 hit a fresh July high.
• BoE-dated OIS shows ~58bp of cuts through year-end. a reminder that moves through 55bp have failed in recent weeks, but fresh dovish signals from the Bank may make this move more meaningful.
• Inflation & labour market data, as well as the Mansion House event, present the key UK risk events this week. Please read our Global Week Ahead email for more colour on those events and expect our full preview in due course.

The German curve has lightly twist steepened, with Schatz yields down 2.5bps at 1.87% and 30-year yields up 1bp at 3.24%. Short-end yields have been pulled lower by US President Trump's 30% EU tariff announcement over the weekend. Still, dovish repricing in short-end EUR rates has been limited by (i) an escalated tariff rate already being embedded in expectations ahead of the weekend and (ii) scope for negotiations between now and August 1 resulting in a lower overall tariff rate.

• 30-year Bund yields reached a high of 3.254% this morning, partly a spillover from the latest upward pressure in long-end JGB yields.
• Bund futures are +12 at 129.29, with volumes levelling off somewhat over the last 90 minutes. A bear cycle remains intact, with initial support the intraday low of 129.11. Clearance would expose 128.97, the May 14 low.
• The EU will kick off issuance for the week today with up to E5bln of 3/9/30-year EU-bonds. The auction will be the smallest triple-tranche auction since these were launched in April.
• 10-year EGB spreads to Bunds are biased wider, with Trump’s tariff announcement denting equity risk sentiment. The BTP/Bund and OAT/Bund spreads are 1.5bps wider. There will be some focus on tomorrow’s French budget outline announcement, presenting fresh risks for OATs.

• Despite President Trump threatening to impose 30% tariffs on the EU and Mexico, both the Euro and the Mexican peso have taken the news in their stride as markets remain cautiously optimistic that more lenient deals may be struck before the August 01 deadline. These limited reactions, and the lack of data on Monday keeps the dollar index within close proximity to Friday’s close.
• For EUR specifically, the brief bout of initial weakness did prompt a fresh pullback low at 1.1651 and notably, the 20-day EMA has been pierced. However, the lack of follow through shows that these shallow dips remain corrective, keeping bullish sentiment firmly intact for now. The July 01 high of 1.1829 remains the bull trigger for the pair.
• In similar vein, the USDMXN trend remains bearish, reinforced by fresh cycle lows for the pair last week. Potential is seen for a bearish extension towards 18.4302, the Aug 01 low.
• Elsewhere in G10, the likes of AUD and NZD are both underperforming in G10, however, it’s the Kiwi’s relative weakness that is helping AUDNZD extend its most recent upswing. The cross looks set to extend its winning streak to six consecutive sessions, shifting the upside target to 1.1032, the April 01 high.
• Tuesday’s data calendar is stacked with China activity figures kicking things off. The focus will then swiftly turn to US and Canadian inflation data, final inputs before both the Fed and BOC decisions on July 30. We will also have the beginning of quarterly earnings season with financials the usual early focus.