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• Treasuries broadly consolidate yesterday’s steepening on challenges to Fed independence, which saw 5s30s at fresh highs since 2021.
• Today sees a light docket with focus on the 5Y auction. Yesterday’s 2Y was well-received, stopping through by 1.5bps and with the bid-to-cover rising to 2.69 from 2.62, whilst last month’s 5Y tailed by 1bp and the bid-to-cover fell to 2.31 from 2.36.  
• Cash yields are 0.8bp higher (2s) to 0.1bp lower (30s) on the day.
• 2s10s at 61.1bps (+3.1bp) is mechanically steeper with yesterday’s new 2Y taking the benchmark. The earlier high of 62.0bp saw its steepest since Jul 16 (62.6bp, after PPI) and prior to that May.  
• 5s30s at 117.6bp (-0.4bp) as it edges off yesterday’s fresh multi-year high of 118.1bps.
• TYZ5 trades at 112-05 (-02+), with the Z5 now the front month. Volumes are relatively subdued at 265k considering about half of this remains roll-related.
• Support is seen at 111-25 (20-day EMA) but the technical outlook remains bullish with resistance seen at the bull trigger of 112-15+ (Aug 5 high).
• Data: MBA mortgage applications (0700ET)
• Coupon issuance: US Tsy $28B 2Y FRN reopen - 91282CNQ0 (1130ET), $70B 5Y Note auction - 91282CNX5 (1300ET)
• Bill issuance: US Tsy $28B 17W bill auctions (1130ET)
• Politics: Nothing scheduled beyond regular in-town pool call time at 0900ET and Trump having lunch with VP Vance (1230ET)

Gov't spox Sophie Primas says that President Emmanuel Macron, in a recently-concluded meeting with the Council of Minsiters, did not discuss the option of dissolving parliament should the Bayrou gov't be defeated in a confidence motion. As MNI noted earlier, recent polling shows a clear majority of respondents in favour of snap legislative elections if PM Francois Bayrou's gov't is ousted on 8 September (see 'FRANCE: Poll-63% Back Dissolving National Assembly & Snap Elections', 08:36BST)

• Primas said there was "there was no [discussion] of a post-September 8 scenario", that Macron offered his "total support" to Bayrou's "approach" in seeking parliamentary approval for spending plans.
• Spox says the gov't will "continue to push forward all of our projects, very important issues that were coming up at the start of the [parliamentary calendar] We must take back the reins of our destiny, (...) this is a strong message to the financial markets,"
• The cabinet also confirmed that municipal elections will take place on 15 and 22 March 2026. In the event that the Bayrou gov't somehow avoids defeat/Macron can put together another gov't, these will be the next major set of nationwide elections to take place in France. 

• In FX, the trend set-up in EURUSD remains bullish and short-term weakness is for now considered corrective. However, the pair is trading lower today and has pierced key support at the 50-day EMA, at 1.1599. A clear break of the average would signal scope for a deeper retracement and potentially expose key M/T support at 1.1392, the Aug 1 low. For bulls, a resumption of gains would open key resistance and the bull trigger at 1.1829, the Jul 1 high.
• A rally on Aug 22 in GBPUSD continues to signal the end of the recent corrective phase - last Friday’s reversal pattern is a bullish engulfing candle. An extension higher would open the short-term bull trigger at 1.3595, the Aug 14 high. Clearance of this level would signal scope for a climb towards 1.3636, the 76.4% retracement of the bear leg between Jul 1 and Aug 1. Key short-term support has been defined at 1.3391, the Aug 22 low.
• USDJPY is trading inside a range and a bear threat remains present. The short-term bear trigger has been defined at 146.21, the Aug 14 low. Clearance of this level would resume a downtrend and pave the way for an extension towards 145.40, a Fibonacci retracement. For bulls, a resumption of gains would instead open 149.12, 61.8% of the Aug 1 - 14 bear leg. Key resistance is far off at 150.92, the Aug 1 high.