GILTS: Bear Steepening On Global Cues
Core global FI markets remain on the defensive this morning.
- European/London participants were quick to fade the Asia recovery in wider core global FI, reversing an opening rally in gilts.
- Ongoing spill over from yesterday’s U.S. PPI data and some focus on the impending Trump-Putin meeting in Alaska is noted, but it’s probably a stretch to deem either of those factors a meaningful driver of this morning’s moves.
- Short-term technicals in futures screen bearish, with the break of yesterday’s base and the August 1 low (91.44) deepening that picture.
- The contract has traded as low as 91.37.
- The next downside target resides at the July 18 base/bear trigger (91.08).
- Yields are flat to +2.5bp, curve biased steeper.
- 5s30s is on for a fresh cycle closing high and is testing the mid-July intraday top (145.77bp). A break there would expose the April intraday high (147.22bp).
- SONIA futures are little changed to -2.5.
- 14bp of BoE cuts priced into OIS through year-end, with the next 25bp move still virtually fully discounted through the February MPC.
- U.S. retail sales and the UoM survey headline the broader data calendar ahead of the weekend.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.973 | +0.6 |
Nov-25 | 3.886 | -8.2 |
Dec-25 | 3.829 | -13.8 |
Feb-26 | 3.722 | -24.5 |
Mar-26 | 3.679 | -28.8 |
Apr-26 | 3.603 | -36.5 |
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EGBS: Bund Futures Off Session Lows But Bearish Theme Still Dominant
Bund futures are off session lows following a downtick in Brent crude futures, but remain -6 ticks at 129.40. A bearish technical theme remains intact, with initial support the July 14 low at 129.08, clearance of which would expose the key support at 128.97 (May 14 low).
- German yields are off earlier highs, now up to 0.5bps lower across the curve. Germany will sell E1.0bln of the 1.25% Aug-48 Bund alongside E1.5bln of the 2.90% Aug-56 Bund at 1030BST.
- In France, opposition politicians have been lining up to criticise the budget proposals announced by PM Francois Bayrou on 15 July. There is a strong likelihood that, given the gov'ts minority status, Bayrou will have to push the budget through using Article 49.3 of the French constitution in order to avoid a vote.
- The 10-year OAT/Bund spread remains fairly insulated though, currently 0.5bps tighter at 69bps.
- Broader EGB spreads to Bunds are also little changed, with European equity futures off earlier lows.
- The Eurozone May trade surplus was larger than expected at E16.2bln (vs E14.0bln prior).
- Broader global focus will be on the US PPI report at 1330BST following yesterday’s CPI reading, which started to show some tariff impact in core goods categories.
US TSY OPTIONS: TYU5 109.50/108.50 Put Spread Also Blocked
TYU5 109.50/108.50 put spread 20K was also blocked at 0-16 vs. 3K TYU5 110-10. Suggest a buyer of the put spread via the block, with the previous screen flow perhaps representing a market maker covering the position before the block was lodged (at 0-17, not 0-16).
EU: Commission To Unveil Multi-Trillion Euro Long-Term Budget Proposal ~17:00CET
At around 17:00CET (11:00ET, 16:00BST), European Commission President Ursula von der Leyen and Budget Commissioner Piotr Serafin are set to hold a press conference (live stream here) to unveil Commission proposals for the next Multiannual Financial Framework (MFF). The MFF is the long-term EU budget spanning 2028 to 2034. Politico reported late on 15 July that the central budget figure being targeted by the Commission is EUR1.717 trillion, which "would mean total spending would rise to 1.23 percent of gross national income for the seven years from 2028, compared with around 1.1 percent over the current period."
- The College of Commissioners meet before the press conference to give final approval. Serafin will also appear before the European Parliament's budget committee at 12:30CET (06:30ET, 11:30BST).
- The MFF process will continue over the next two years, and there is likely to be a significant amount of change from these initial proposals. EU Observer notes, "the parliament and member states will enter technical discussions and more intensive negotiations. But the specific figures and how funds will be allocated will only emerge at a later stage. Informal meetings among the commission, council, and MEPs may be used early on to align positions."
- Initial expectations are that VdL will look to propose “new own resources”, i.e. new 'EU taxes' to raise revenues. Such a proposal will prove controversial, with Sweden's European Affairs Minister Jessica Rosencrantz saying, “We don’t see a need for new own resources and definitely not European taxes."
