OUTLOOK: Price Signal Summary - Short-Term Bull Cycle In Bunds

• +4,000 TUZ5 104-12.62, buy through 104-12.5 post time offer at 0713:00ET, DV01 $163,200.
• The 2Y contract trades 104-12.5 last (-.62)

MBA mortgage applications saw some traction from lower rates last week, with the level of composite applications at its highest since mid-2022 after 30Y mortgage rates fell 15bp to the lowest since Oct 2024. 

• MBA composite mortgage applications stepped 9.2% higher last week (sa), following three small declines that had only chipped away at a solid 11% increase earlier in August.
• It was led by refis rising 12% M/M, but as opposed to that early Aug 11% increase when refis jumped 23%, there was a more broad-based contribution with new purchase applications rising 6.6% (vs 1.4% in that previous composite step higher).
• Bear in mind still very subdued levels relative to 2019 averages though: composite 63% (highest since Jul 2022), new purchases 65% and refis 58%.
• The push to new recent highs followed a sizeable drop in the 30Y conforming mortgage rate to 6.49% (-15bps) for a 35bp decline since mid-July and its lowest level since Oct 2024.
• The decline in mortgage rates exceeded the 7bp decline in the average 10Y swap rate over the week, pushing the 30Y mortgage to 10Y swap rate spread down to 285bp.
• That’s the tightest spread since reciprocal tariffs were first announced in early April at which point it widened to 315bp in the month that followed and then held around 300bp +/-5bp for some time. It’s also coincidentally back to where it averaged through 1Q25.
• Note that this follows US Tsy Sec Bessent in recent weeks talking on wanting to keep the spread between mortgage rates and treasuries flat or even bring it down. 

This morning, the Swedish Government announced the latest set of measures included in the 2026 budget (to be presented in full on Sep 22). Today’s focus was an “entrepreneurship package”, the first set of business-focused policies entering the budget after several household-centred announcements in recent days. 

• The Finance Ministry has now announced SEK53.5bln of expansionary policies for 2026, out of a SEK80bln total earmarked for the budget.
• Today’s policies totalled SEK7.2bln for 2026. The majority (SEK6.05bln) is being spent on a temporary reduction in the employer costs associated with hiring 18-23 year olds. See here for more.
• The Swedish labour market remains weak, so measures aimed at supporting businesses to stimulate employment appear necessary. A press conference detailing education and labour market-specific policies in the 2026 budget is currently ongoing (see here)
• Monthly activity indicators were released this morning. There are tentative signs of improvement for GDP/production as a whole, but consumption signals remain soft:
  • GDP fell 0.2% M/M, but June’s figure was revised up to 1.4% from 0.5% initial (as expected following the Q2 final GDP report last month). On a 3m/3m basis, GDP is up 0.9% (vs 0.5% in June).
  • Household consumption rose 0.2% M/M (vs 0.6% prior), but 3m/3m growth fell to 0.1%, the weakest since August 2024.
  • Private sector production fell 1.7% M/M, unwinding a portion of June’s solid 2.7% rise. On an annual basis, production is up 3.8%.