US: MNI POLITICAL RISK - Trump And Xi Hold First Call Since June

{GB} GILTS: While gilt bears managed to force the highest closing level for 30-Year yields seen in the current cycle on Monday (5.611%), they failed to challenge the intraday high registered in early April (5.659%), with the subsequent recovery leaving the benchmark at 5.55%.

• While demand for long end paper has been robust in instances of primary issuance, structural reduction in pension holdings reduce demand in the secondary market, while the UK’s ongoing fiscal fragility provides background pressure (at a minimum).
• As a result, the uptrend in play since the ’21 low remains intact, with that support line ~20bp below prevailing levels at typing.

Fig. 1: UK 30-Year Gilt Yield (%)

Source: MNI - Market News/Bloomberg Finance L.P.

Dovish ’26 BoE pricing moves have pulled the SONIA/Euribor Dec ’26 (Z6) spread off yesterday’s multi-week closing highs.

• We suggested that the data wasn’t much of a gamechanger for near-term BoE meeting pricing in the immediate aftermath of the release and that seems to have played out, with the initial hawkish reaction in the front contracts countered.
• The recent run of UK data had resulted in ~18bp of spread widening since August 1, as of yesterday’s close.
• The spread is mainly being driven by the UK leg, with Euribor pricing more stagnant since the July ECB decision.
• The main development since the ECB's July decision has been the EU-U.S. trade agreement. While the agreement reduced near-term trade policy uncertainty, the level of tariffs is more onerous than assumed in the ECB's baseline scenario.
• That said, ECB President Lagarde noted this morning that the agreement is "well below" the June MPR projection severe scenario". How the agreement is incorporated into the September forecast round will be a key focus as we move forwards.
• A reminder that the ECB adopted a less dovish round of rhetoric after its most recent cut.
• Euribor futures start to price chances of a hiking cycle in H226, after leaning towards one further cut in the current cycle.

Fig. 1: SONIA/Euribor Dec’26 Spread (bp) 

Source: MNI - Market News/Bloomberg Finance L.P.

• Secured Overnight Financing Rate (SOFR): 4.33% (-0.01), volume: $2.760T
• Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $1.144T
• Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $1.118T
• (rate, volume levels reflect prior session)