ECB: ECB Speak Wrap (June 24 – July 7)
The ECB’s annual forum in Sintra, Portugal was held last week, and as usual provided a platform for several Governing Council members to share views around current monetary policy. Amid the noise, the MNI Policy Team’s latest sources piece nicely summarised the mood within the ECB: Officials are virtually unanimous that their June projections are so far being confirmed by incoming data, despite ongoing risks from global trade tensions, paving the way to a likely September cut, though some more cautious policymakers would prefer to wait until December.
- A reminder that the June macroeconomic projections were based on a market curve which embedded one more 25bp cut this cycle, with markets now focused on (1) the timing of this likely cut and (2) the scope for a terminal rate below 1.75%. A July cut appears very unlikely at this stage, with any lingering chance of such a move seemingly requiring an unexpected deterioration on the tariff/trade front.
- The most interesting thread of discussions in Sintra was on the exchange rate, after Vice President de Guindos surprisingly suggested a EURUSD exchange rate above 1.20 would be “complicated” for the Eurozone economy. Although de Guindos also noted that the speed of adjustment in the exchange rate, rather than the level, was most important to monitor, his comments meant that most speakers were asked to weigh in on the currency during the week.
- Belgium National Bank Governor Wunsch struck a more centrist tone than usual in his first comments since the June decision. Usually more hawkish leaning, Wunsch told MNI that “while not expressly calling for a cut myself, I can understand and see why further easing is priced in by financial markets. The risk is probably to the downside”
- Last week also saw the release of the ECB’s latest Strategy Review, and the Minutes of the June decision
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JGB TECHS: (M5) Rallies Off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.19 @ 15:53 GMT Jun 06
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: June 2025
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- May’s refunding round saw guidance as well as coupon sizes for the current quarter unchanged.
- The August round (Jul 28-30) could prove more compelling, reflecting both pressure at the long end of the Treasury curve as well as a shifting fiscal outlook amid tariff revenues contrasted with impending tax cuts (not to mention the likelihood of approaching the debt limit at around that time if it’s not lifted).
- Future Coupon Upsizing: We’ve seen some expectations that Treasury could lean against some of those trends in the August refunding, with potential signals if not immediate action on adjusting buybacks or even reducing issuance duration in order to reduce pressure on the long end. MNI’s current expectation is that coupon sizes will only be increased in early 2026. We will update in our next Deep Dive at end-June, with our full refunding preview coming in late July.
- Upcoming issuance: June is set to see $315B in nominal Treasury coupon sales, in addition to $23B in 10Y TIPS and $28B FRN for a total of $366B. Sales for the month start in the coming week, on Tuesday June 10 with $58B of 3Y Note, Wednesday June 11 with $39B of 10Y Note, and Thursday June 12 with $22B of 30Y Bond.
- May Auction Results: Against a backdrop of continued steepening pressure for global sovereign curves, May’s coupon auctions saw strong sales at the short-end/belly contrasted with tails at the long-end.
US FISCAL: Extraordinary Treasury Measures Tick Up As Cash Depletes
Treasury had $84B in "extraordinary measures" available to keep the government financed as of June 4 per a release Friday. That is up from $68B a week earlier though Treasury has exhausted three-quarters of the total initially available ($362B) when the debt limit impasse began in January.
- Combined with a pullback in Treasury cash ($376B), the total resources available to avert an "x-date" in the summer are down to a total $460B, the lowest since April 10 before the annual tax take accelerated.
- There will be another uptick in Treasury cash late next week/early the following week around the mid-June tax date, but this is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
