SECURITY: Iran Warns Third Party Against Joining Israel Ahead Of SitRoom Meeting

The sell off in gilts has stalled as Tsys recover from session lows, leaving gilt futures within the range observed over Friday & Monday, last -34 at 91.16.

• The range extremes witnessed over the prior couple of sessions continue to present initial support and resistance (90.86/92.23).
• Flattening impulse generated by BoE chief economist Pill fades, yields now ~3bp higher across the curve.
• 2s registered fresh May highs at 4.066% before gilts recovered from lows, next upside level of interest seen at the April 10 high (4.078%).
• 5s saw a similar pattern develop but yields further out the curve respected highs seen in recent sessions.
• 5s30s is set to respect the April 14 closing low (~123bp) mentioned earlier, back above 125bp..
• BoE-dated OIS stabilises around pricing 40bp of cuts through year-end, with ~60% odds of a 25bp cut priced through August and just over 80% odds priced through September, before ~33bp of cumulative easing is priced through November.
• SONIA futures remain under pressure after Pill’s comments were digested/wider core global FI moves factored in, with some of the whites and reds through last week’s lows. Contract last 0.25-5.0 lower across the strip.
• Terminal rate pricing for the current cutting cycle (proxied by SFIU6 at present) last prints at 3.68% after testing last week’s hawkish extreme of 3.685% earlier in the session.
• UK CPI data is due tomorrow morning, our preview is here.

• EUR/USD: $1.1140-50(E1.3bln), $1.1200(E809mln), $1.1250(E1.1bln), $1.1270(E500mln), $1.1390-05(E2.1bln)
• USD/JPY: Y142.00($878mln), Y144.50($610mln)

Long end swap spreads are still struggling to rally, despite Tsys moving away from session lows after the House Freedom Caucus Chair noted that “we are still a long ways away” from agreement on the ‘One Big Beautiful Bill’.

• 10- & 30-Year swap spreads hover close to yesterday’s lows.
• Swap spread bulls will continue to point to heightened potential for SLR reform, with the matter clearly a front of mind subject for the likes of Treasury Secretary Bessent.
• However, the seemingly structural cheapening of Tsys vs. swaps in light of Moody’s late Friday sovereign credit rating downgrade of the U.S. means that any rally driven by subsequent SLR reform is likely to result in a slightly lower peak for swap spreads than would have otherwise been the case.