JGBS: Elevated OIS rates to help keep a lid on JGB 2s/10s steepening

Speaking at a presser in Berlin, NATO Secretary General Mark Rutte claims that the 7-8 July NATO leaders' summit in Ankara "will focus on turning extra spending into combat-ready capabilities". NATO's message to the European defence industry is "to scale up". Adds that NATO allies "will commit at the summit to providing sustainable long-term security assistance for Ukraine".

• Alongside Rutte, German Chancellor Friedrich Merz says, "We want to make NATO as a whole more European; we are reducing transatlantic dependencies," but warns, "We do not want national unilateral actions within NATO." Says that Europeans in NATO "want to make a new funding commitment to Ukraine at the NATO summit."
• Merz says regarding arms production that "We are interested in cooperating with the US, but this does not contradict the goal of greater independence." For more see GERMANY: FT-Berlin Seeks To Build US Weaponry In Effort To Boost Industry.
• Merz: "We Europeans will present ourselves with confidence at the NATO summit; we are dependent on the US, but the US is also dependent on us".
• While comments like these are not market-moving in nature, the impact of US demands for greater European spending on their military will continue to impact fiscal policy across the continent over the coming years. Already-strained budgets in some countries will be further stretched, pressuring NATO nations into either raising taxes, cutting gov't spending elsewhere, issuing more debt, or refusing to raise spending and risking a major deterioration in US relations and threats to national security. 

See the following pdf for a succinct summary of various ECB speakers at the Sintra Forum so far: https://mni.marketnews.com/4vIrDAp

• ECB Speak has unsurprisingly been heavy during the ECB’s Sintra Forum, with further appearances from Chief Economist Lane before President Lagarde due later today on the last day of the conference. Lagarde will be on the keynote panel with Fed Chair Warsh, BoE’s Bailey and BoC’s Macklem, starting 2pm London.
• The more hawkish members of the Governing Council haven’t been overtly pushing for an immediate follow-up rate hike after last month’s 25bp hike, instead maintaining optionality. Some have argued the need for further tightening has receded following the marked decline in crude oil futures. There is however still much uncertainty including how long it takes to convert the current US-Iran peace agreement into something more durable, whilst Chief Economist Lane warned on the time it could take for higher energy prices to show up. There doesn’t yet look to be any evidence of material second-round effects from the previous spike in energy prices although wage agreements remain a key focus point.
• Bloomberg’s NLP hawk-dove score has tilted a little more hawkish over the duration of the conference although in the broader picture it’s only a slight move since our last ECB Speak Wrap on Jun 22 covering commentary in the first full week after the June decision.
• ECB-dated OIS currently prices just 2bp of hikes for July, a cumulative 16.3bp Sept and sees a 25bp hike as a close call between Jan and Mar 2027.