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We have flagged some dovish risks around the ECB reiterating that monetary policy is “in a good place” alongside Thursday’s interest rate decision, with the Bank’s updated economic projections set to provide an extra layer of input for markets to trade off.

• Sell-side notes that we have read generally point to caution when it comes to the idea of a swift extension of last week’s hawkish repricing in EUR STIRs, with some looking to fade the move:
• Bank of America: We stay received Mar ‘26 ECB. Our economists still expect a 25bp cut in March ‘26 vs. market pricing of less than 1bp of cumulative cuts by then. Risks are stronger than expected growth or inflation.
• Goldman Sachs: We do not think EUR front-end steepness out to 2y1y is excessive given the shift in momentum in German activity and elevated long-dated forwards. But the repricing in nominal rates has been abrupt and has outrun signals from traded inflation. In that sense, the key determinant of returns in front-end longs relates to whether and how much the cyclical improvement in Germany - that we expect - is convincing enough to shift the distribution of risk in Euro area inflation. We do think that better cyclical data will floor the inflation distribution and will see EUR core yields drift higher - we remain short Bunds vs. Gilts - but presuming President Lagarde falls short of endorsing hike pricing, risks are tilted towards a consolidation in front-end pricing in the near term.
• Natixis: We continue to expect the ECB to maintain its “we are in a good place” stance, while the market believes that “stability” warrants a risk of a hike next year. We therefore prefer a Euribor Mar ‘26/Dec ‘26 flattener because we think that Lagarde will probably halt the trend, even if GDP growth projections are likely to be revised upward.

Gilts have followed core global FI peers away from Friday lows, with futures rallying to ~91.30

• Initial technical parameters remain unchanged
• Recent price action in futures highlights 90.53, the Nov 25/26 low, and 91.93, the Nov 27 high, as the important short-term directional triggers.
• Yields 1.5-3.5bp lower, curve flattens after 2s10s and 5s30s rallied ~8bp from their respective post-Budget closing lows.
• Multi-week ranges in the short end remain intact.
• 22bp of easing priced for Thursday’s BoE decision, with 63bp of cumulative cuts priced through the end of ’26.
• December ’26 meeting pricing extends the dovish rebound after failing to break below 50bp of easing during recent rounds of hawkish repricing.
• SONIA futures flat to +2.5, SFIZ6 pierces Friday’s high.
• CPI (Tuesday) & labour market (Wednesday) data are due ahead of the BoE decision.
• The Bank will receive both of the releases this morning and as long as there are no notable surprises, we expect Governor Bailey to join the four dovish dissenters from the November meeting, which would mean that the Bank would deliver a 25bp cut.
• Expect our full suite of previews and reviews around those events.
• Some early focus on an article noting that Indeed wage tracking points to slower wage growth for lower paid workers (the cohort’s wage growth had been fairly resistant to BoE tightening), although wage growth only slowed to +5.9% Y/Y in October from a 7-month high of +6.6% in September. 

• The German 5s30s curve has flattened 1.5bps today, with the 5-year yields down 0.5bps and 30-year yields down 2bps. This week’s regional calendar is heavy, with focus not only on incoming data (December flash PMIs on Tuesday) and monetary policy decisions (ECB on Thursday), but also 2026 issuance plans. Germany’s issuance plan is due on Thursday, and the maturity skew may determine whether 5s30s can break out of the 93-111bp range seen since September.
• Bund futures are in consolidation mode. A bear-mode cycle is intact and the contract is trading closer to its recent lows. Initial resistance is the Dec 8 high at 128.08.
• 10-year EGB spreads to Bunds are up to 1.5bps narrower on the session, led by BTPs. The BTP/Bund spread is now at 67.5bps, narrowing the gap to the 2009 low of ~65.4bps.
• In France, focus remains on political headline flow surrounding the 2026 State budget, which is expected to be passed in the Senate today. A Joint Committee of senators and National Assembly parliamentarians will then try and find an (unlikely) compromise on Friday.
• Eurozone October industrial production was in line with consensus at 0.8% M/M (vs 0.2% prior).