FED: MNI Hawk-Dove Spectrum Eyes End-2026 Rate Views (3/3)

European curves lightly bear steepened to open the week.

• Core FI opened the week on the back foot, hitting the session's highs in mid-morning trade as weekend news was digested including Ukranian attacks on Russian military equipment and the US's announcement that it would raise tariffs on aluminium and steel to 50%.
• Also adding to the early bearish tone were EU bond suppply and Spanish manufacturing PMI coming in above expected.
• But yields would pare their rises over most of the rest of the session, as equities stabilized and US desks came in.
• In futures, rolling activity was heavy, with most Eurex contracts now around 40% through the Jun/Sep roll.
• Gilts mildly outperformed Bunds; periphery/semi-core EGB spreads traded mixed, closing off the early session wides.
• Tuesday brings Eurozone flash inflation and BOE appearances at the Parliamentary Treasury Committee, with the week's focus remaining on Thursday's ECB decision.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.3bps at 1.789%, 5-Yr is up 1.9bps at 2.083%, 10-Yr is up 2.4bps at 2.524%, and 30-Yr is up 3.2bps at 3.012%.
• UK: The 2-Yr yield is up 0.6bps at 4.029%, 5-Yr is up 1.9bps at 4.163%, 10-Yr is up 2bps at 4.667%, and 30-Yr is up 3.8bps at 5.41%.
• Italian BTP spread down 0.4bps at 97.6bps  / French OAT unchanged at 66.4bps  

A new survey from YouGov has found that US President Donald Trump’s "three weakest issues are all linked to the economy.”

• YouGov notes that Trump, “is now 19 points underwater on the economy in general (37% approve to 56% disapprove); 22 points underwater on trade and tariffs (35% approve to 57% disapprove); and 27 points underwater on the cost of living (32% approve to 59% disapprove).”
• “To put those numbers in perspective, Trump’s average approval rating on the economy was 49% in the middle of 2020 — at the height of the COVID-19 crash. His average disapproval rating was 45%,” adds YouGov.
• Silver Bulletin notes on recent polls, "Trump ends up with a 45.9 percent approval rating and a 51.3 percent disapproval rating. That -5.4 net approval rating is his worst showing since May 18th. But it’s still much better than his second term low of -9.7 back in April."

Figure 1: Trump Approval on Issues

Source: Silver Bulletin

After some delay in publishing a speech that was meant to show at 3pm London today, Catherine Mann’s text is now live for her upcoming appearance at a fireside chat at a Federal Reserve conference starting 2230BST. Now that the monetary policy restrictiveness is being reduced, the Bank must consider the interaction between QT and rate decisions with QT tightening unable to perfectly offset rate cuts. 

Some highlights below (full remarks here): 

• “Since potential tightening effects of QT cannot be perfectly offset by cuts in Bank Rate, because they generate a different set of monetary and financial conditions, the combination of tools and their macroeconomic effects must be carefully considered.”
• “Asset run-off and asset sales can influence monetary transmission by affecting different parts of the yield curve. If large enough, this needs to be incorporated into my future interest rate decisions.”
• “Now that the MPC is reducing restrictiveness, I believe that we need to consider the differing effects of our policies (whether in the fore- or background) on different parts of the yield curve and their effects on monetary policy transmission as a more salient issue.”