BUNDS: The German Buxl finds a base at the 3.30% Yield

SFIZ5 96.50/96.80 call spread, bought for 4.75 in 3k

Futures trade to the lowest level seen since early June in light of the firmer-than-expected CPI data.

• Contract as low as 91.25 before a recovery to 91.35, next support located at the June 2 low (91.16), with bears deepening their technical control.
• Yields 2.5-3.5bp higher, curve flatter.
• 2s remain rangebound.
• 10s register the highest level of the month, nearing the June 9 high (4.673%).
• 30s eye late May highs (5.516%).
• STIR pricing stabilises around 50bp of BoE cuts through year-end.
• Market continues to price in over 80% odds of a cut for August. Governor Bailey’s weekend comments were dovish and centred on the labour market, which increases the importance of tomorrow’s labour market data release and makes for relatively contained reaction to this morning’s data.
• The DMO will issue GBP1.5bln of the 4.50% Sep-34 line via PGT this morning.
• Nothing of any real note from BoE Governor Bailey and Chancellor Reeves (outside of already leaked details) in the Mansion House addresses last night, which will leave focus on adjustments to the CPI release and any spill over from U.S. PPI data.

ECB-dated OIS pricing remains consistent with one more 25bp cut this cycle, but there is still some uncertainty as to whether this cut will be delivered at the September or December macroeconomic projection meetings. Recall the MNI Policy Team’s post-Sintra forum sources piece, which said “officials are virtually unanimous that their June projections are so far being confirmed by incoming data, despite ongoing risks from global trade tensions,  paving the way to a likely September cut, though some more cautious policymakers would prefer to wait until December”.

• US President Trump’s 30% tariff threat against the EU over the weekend hasn’t done much to change that narrative, with focus still on the outcome of negotiations between the two parties.
• OIS currently price virtually no implied probability of a cut at next week’s meeting. Meanwhile, there are 11bps of sequential cuts priced between July and September, 3bps between September and October, and 9bps between October and December.
• Interestingly, the curvature of the OIS curve around the two upcoming projection meetings is identical – butterfly spreads centred on the September and December projection meetings are both -7.4bps.
• Yesterday evening, ECB’s Nagel re-iterated his preference for a “steady hand” in setting rates, in line with previous comments and his hawkish leaning view.
• Today’s regional calendar includes final Italian June HICP and May Eurozone trade data. Wider focus will be on the US PPI report following yesterday’s CPI reading, which started to show some tariff impact in core goods categories.