US TSYS: Chunky 2Y 1Wk Put Bet

• RES 4: 0.8652 High Jun 26 
• RES 3: 0.8632 76.4% retracement of the Jun 22 - Jul 15 bear leg  
• RES 2: 0.8601 61.8% retracement of the Jun 22 - Jul 15 bear leg
• RES 1: 0.8588 High Jul 30
• PRICE: 0.8567 @ 17:08 BST Aug 04
• SUP 1: 0.8518/8455 Low Jul 22 / 15 and the bear trigger 
• SUP 2: 0.8443 2.236 projection of the May 18 - 25 - Jun 22 swing   
• SUP 3: 0.8400 Round number support
• SUP 4: 0.8374 76.4% retrace of the Dec 19 ‘24 - Nov 14 ‘25 bull leg  

EURGBP is trading closer to its latest highs. Short-term gains have allowed a recent oversold trend condition to unwind. The trend needle, however, continues to point south and the latest recovery is considered corrective. Key resistance and a pivot level to watch, is the 50-day EMA at 0.8581. It has been pierced, a clear break of it would signal scope for a stronger recovery near-term. Key support and the bear trigger lies at 0.8455, the Jul 15 low.          

At Treasury's quarterly Refunding announcement on Wednesday (8:30am ET), any adjustments to the policy statement’s guidance on future auction size increases will be the most closely-watched aspect. As time passes there are increasing chances of a change here, with consensus being for an upsizing in coupon auction amounts at some point in the next year.

• Coupon sizes have held steady for 9 consecutive refundings, and no analysts that we are aware of expect any changes to nominal auction sizes for the upcoming quarter. MNI’s expectation for auction sizes over the coming Aug-Oct quarter is in the table below.
• The main question at this refunding once again is whether Treasury will make a long-awaited tweak to its guidance on future auction sizes. The prevailing expectation is that there will be no change - but a large minority of analysts either see a change as their base case, or considerable risks of a change.
• Treasury's guidance from the May 2026 refunding: "Based on current projected borrowing needs, Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters. Treasury is monitoring SOMA purchases of Treasury bills and growing demand for Treasury bills from the private sector. Looking ahead, Treasury continues to evaluate potential future increases to nominal coupon and FRN auction sizes, with a focus on trends in structural demand and potential costs and risks of various issuance profiles".
• May’s guidance was unchanged from the prior edition in February, having been tweaked in the prior 2 refundings. It has successively added some the language surrounding beginning to consider future increases, but the key element there is the “at least” several quarters.
• The implication of maintaining guidance unchanged is that Treasury would be implicitly signalling that there won’t be any coupon upsizing for at least 2 quarters from now (ie February 2027) and probably not for 3 or 4.
• With the median analyst eyeing an upsizing by the May 2027 refunding (though there is a range around that assumption both earlier and later), that means an adjustment to the guidance is expected no later than the November round. Indeed if they were to eye upsizing in February 2027, this would probably be the month to signal it.
•  For now, Treasury will continue to lean on bill issuance instead of coupon upsizing, and will only be encouraged to avoid shifting the burden onto longer-maturity issuance especially given the recent rise in long-end yields. Though eventually the widening financing gap will require coupon upsizing, and our base case remains that will come in May 2027. In turn this may necessitate some softening in the guidance now.
• Last time, in May’s refunding, we incorrectly anticipated that the guidance would be tweaked by removing the words “at least”, which would keep open the possibility of increases next year (“next several quarters”); that outcome seems more likely this time. 

Gilts outperformed Bunds again Tuesday in a broad rally across European government bonds.

• After a mixed opening few hours of the session in which yields leaned higher, bonds began rallying just before noon London time on news emanating from Qatar that language of a "possible" US/Iran deal had been drafted.
• Yields (and energy prices) extended their drop about an hour later as US Treasury Secretary Bessent highlighted a potential agreement to open the Strait of Hormuz.
• European data was 2nd tier: Spanish July unemployment claims were elevated but employment was strong.
• Both the German and UK curves bull steepened on the day, while periphery/semi-core EGB spreads tightened, led by Greece and Italy as global equities jumped.
• Wednesday's data includes final Services/Composite PMIs and French industrial production.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.9bps at 2.717%, 5-Yr is down 5.7bps at 2.832%, 10-Yr is down 4.5bps at 3.107%, and 30-Yr is down 2.1bps at 3.633%.
• UK: The 2-Yr yield is down 7bps at 4.236%, 5-Yr is down 6.2bps at 4.437%, 10-Yr is down 5.6bps at 4.897%, and 30-Yr is down 4.2bps at 5.645%.
• Italian BTP spread down 2.9bps at 75.6bps / Greek down 2.7bps at 65.9bps