BUNDS: Looking Through Soft 7-Year Auction
Note that Bunds haven’t shown much in the way of sensitivity to the technically uncovered 7-Year auction that came this morning.
- This added to the recent trend of softening demand at German primary offerings, with last week’s 30-Year offering also being technically uncovered (albeit with that instance coming within a dual tranche auction).
- Desks pointed to the potential for softer demand ahead of today’s auction, with the 7-Year zone falling between the demand sweet spots of 5s & 10s, making for fewer natural buyers in this area of the curve (as well as a more cumbersome/less exact hedging process).
- This, combined with focus on the resumption of more meaningful supply after the summer break and the incoming increase in German issuance, likely factored into soft demand at today’s offering.
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US TSYS: Early SOFR/Treasury Option Roundup
US SOFR/TREASURY OPTION SUMMARY
SOFR & Treasury options were rather paired on lighter volumes overnight - two way positioning ahead of Wednesday's FOMC annc. Underlying futures weaker after paring losses in early London trade, curves steeper with 2s10s +1.392 at 47.641, 5s30s +.909 at 97.968. Projected rate cut pricing running steady to mildly cooler vs. late Friday (*) levels: Jul'25 at -0.05bp, Sep'25 at -16.7bp (-16.7bp), Oct'25 at -27.6bp (-28.1bp), Dec'25 at -43.6bp (-44.2bp). Year end projection well off early July level of appr -65.0bp
- SOFR Options:
- 2,000 SFRU6 96.62/97.25 2x1 put spds
- 2,000 SFRQ5 95.87/96.00/96.12 call flys ref 95.825
- Block/screen, 4,000 SFRU5 95.81/95.87/95.93 put flys, 0.75 ref
- 2,000 SFRH6 96.81/97.06 call spds ref 96.295
- 3,000 SFRU5 96.75/97.62 strangles ref 96.675
- 1,000 SFRU5 96.75/97.37 2x1 put spds vs. 97.00/97.62 1x2 call spds
- 6,000 0QZ5 95.87/96.12/96.37 put flys, 3.0
- +1,000 SFRQ5 95.875/96.00/96.12 call flys, 1.5 vs. 95.845/0.10%
- +1,000 SFRU5 95.875/96.00/96.12 call flys, 2.75 vs. 95.855/0.08%
- Treasury Options:
- 4,000 USU5 115/117/118 broken call flys
- over 4,600 TYU5 110 puts, 20
- over 4,900 TYU5 111 calls, 37
- over 4,600 TYV5 109.5 puts, 31 ref 111-01
- 3,000 TYU5 106.25 puts, 1
- +5,000 wk1 TY 111 puts, 22
- +5,000 wk1 TY 111 calls, 26
- +4,850 TUU5 103.625/104.25 call spds, 7.5-8
US: MNI POLITICAL RISK - Trump Strikes Preliminary Trade Deal w/EU
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- President Donald Trump will meet UK Prime Minister Keir Starmer for a bilateral meeting before heading to the east coast of Scotland.
- Starmer is expected to press Trump for a better deal on steel and pharmaceutical tariffs. Starmer will also advocate for stronger US support for Ukraine and Gaza, and shore up US commitment to NATO and AUKUS.
- Trump said he will reduce the 50-day deadline for Russia to reach a ceasefire with Ukraine.
- Markets are braced for one of the busiest weeks ever for US data.
- Trump and European Commission President Ursula von der Leyen announced a preliminary deal that will see the EU levied with a 15% tariff. The deal has received a mixed response from European leaders, who see it as the least worst option.
- US and Chinese officials will begin a third round of trade talks in Sweden today, aimed at extending the tariff truce. A breakthrough could facilitate a meeting between Trump and Chinese President Xi Jinping in the Autumn.
- Commerce Secretary Howard Lutnick said there will be "no extensions" on the August 1 tariff deadline.
- OMB Director Russell Vought accused Fed Chair Powell of ‘fiscal mismanagement”.
- Senate Majority Leader John Thune (R-SD) is aiming to get a first FY26 ‘minibus’ through the Senate this week.
- Thailand and Cambodia agreed to a ceasefire, following pressure from Trump.
- Poll of the Day: Democrats' image sinks to its lowest point in decades.
Full Article: US DAILY BRIEF
GERMANY: Latest Military Spending Talk Does Little For Markets
BBG reports note that "Germany plans to more than double its defense outlays — including Ukraine aid — to as much as €162 billion ($189 billion) over the next four years as part of an investment push to rebuild its neglected military in response to mounting Russian aggression in Europe".
- That level of spending looks like a marginal mark higher vs. previous expectations carried by some wires, with 9bln of annual spending earmarked for Ukraine helping nudge the estimates a little higher.
- Note that these numbers have been touted in some circles/reports previously, which explains the retrace from reaction lows in Bunds.
