US TSY FUTURES: Net Long Cover Dominated On Wednesday

The German 10s30s extended earlier steepening after the German Finance Agency, DFA, noted that “internal conditions” had been created for a 50-year Bund in its Q3 issuance plan press conference. The curve is almost 4bps steeper at 48.5bps at typing with 2s10s also up almost 4bps to 70.5bps. Meanwhile, long end ASWs have come under fresh pressure.

• The Q3 issuance plan itself was in line with MNI’s expectations, with a E15bln increase in overall bond issuance, skewed towards the new 7-year maturity bucket.
• Meanwhile, the German 2025 budget and 2026-29 key figures appear in line with yesterday’s media reports. 2025 net borrowing is seen at E82bln, rising to E89bln in 2026 and E126bln by 2029.
• Bund futures are -64 ticks at 130.43, with initial support at 130.17 (Jun 16 low) and 130.07 (2.60% 10-year yield level).
• Early price action was dictated by developments in the Middle East, with oil and natural gas futures selling off sharply on reports of a ceasefire between Israel and Iran. Latest headline flow suggests this ceasefire may be fragile.
• Germany sold E4bln of the 1.7% Jun-27 Schatz today.
• 10-year EGB spreads to Bunds are biased tighter, led by BTPs (-5bps to 92bps). Although reports of the Iranian strike on Israel dented risk sentiment somewhat, European equities remain up 1.7% todays. Latest Bund underperformance has supported narrowing momentum.
• The German June IFO Business Climate and Expectations components were stronger-than-expected, while the Current Assessment was a touch weaker.
• Several ECB speakers (de Guindos, Kazimir, Lagarde and Lane) are scheduled to speak today.

 Gilts under pressure as the German curve bear steepens.

• Futures stick within yesterday’s range, last -33 at 92.78 (trading 92.64-93.21 today).
• Bulls remain in technical control.
• Key short-term support defined at the Jun 16 low (92.23).
• The bull trigger & June 13 high (93.68) presents the major area of upside interest.
• Yields little changed to 5bp higher, curve steeper.
• 2s10s and 5s30s held above 60bp & 120bp in respective closing terms on Monday.
• Lower oil prices (linked to the already breached Iranian-Israeli ceasefire & lack of meaningful Iranian reaction to the U.S. bombing of its nuclear facilities) anchor the front end.
• BoE-dated OIS across ’25 meetings 0.5-1.5bp more dovish on the day, showing 19.5bp of easing for August (our base case is for a cut), 25.5bp through September, 42.5bp through November and 50bp through year-end.
• SONIA futures +2.0 to -4.0, twist steepening given cues from further out the curve.
• We think that comments from BoE’s Greene suggest that she is probably on board with another cut in August but she doesn't think that uncertainty will recede anytime soon {potentially raising the bar when it comes to her supporting sequential cuts).
• Comments from BoE’s Bailey, Ramsden, Pill & Breeden due through the remainder of the day (the latter 2 may not touch on monetary policy).

• "The labour market has eased roughly in line with our expectations. A margin of slack seems to have opened up"
• "I place more weight on our own estimate of underlying employment growth, which points to stagnation in hiring rather than contraction" [rather than the ONS payrolls numbers].
• "The corresponding picture on pay is somewhat more nuanced: so far pay settlements have come in between 3-4%, in line with the steer we are taking from the Agents’ pay survey and the Decision Maker Panel (DMP) for 2025. Overall, I think the evidence points to a slowly softening labour market rather than one that is sharply deteriorating."