IRAN: “THERE HAS BEEN ABSOLUTELY BEEN NO PROGRESS ON THIS ISSUE - SENIOR [...]

• The Euro 1y1y forward rate remains heavily anchored to TTF natural gas futures, maintaining a tight correlation established since late March. Front-end hawkish repricing is likely capped unless TTF breaks aggressively above current ranges.
• Renewed weekend strikes between the US and Iran pushed front-month TTF up +3.5%, reclaiming the psychological €50/MWh threshold. This carries heavy inflation weight, as electricity and gas account for 5.25% of the HICP basket, outstripping fuels and lubricants at 3.83%.
• Despite the latest energy bounce, the 1y1y EUR forward retains a ~15bps buffer below its April/May peaks. A sustained energy breakout is required to unlock further upside in the 1y1y.
• The primary risk to this thesis is a structural breakdown in the TTF/1y1y relationship. This would require a major shift in broader ECB policy guidance or a severe macroeconomic growth shock.

• The immediate front end remains largely insulated from the weekend escalation, aided by ongoing diplomatic mediation. Implied hikes for the September meeting ticked up just +1bp, keeping the total priced premium relatively steady at ~22bps.

  

• US rates are back to only slightly lower on the day having pared losses seen with the Asia open that were driven by Iran declaring the Strait of Hormuz is closed but the US insisting it remains open.
• Crude oil futures have also pared increases although there’s a sizeable difference in the rate of adjustment here with WTI 1st still ~3% higher on the day.
• FF cumulative hikes from 3.63% effective: 8.5bp Jul, 22bp Sep, 28bp Oct, 37.5bp Dec before 46.5bp in Mar and Jun 2027.
• SOFR futures are currently up to 1.5 ticks lower in the U7, peak implied yield of 4.14% remains in the H7, after its 4.175% overnight came closer to the top end of the rough range of 4.00-4.20% in recent weeks.
• Today sees a quiet data docket although Fed Governor Waller speaks at NYABE at 1230ET with both text and Q&A. He said Jul 6 that forward guidance was still a “useful tool” with some caveats compared to Fed Chair Warsh’s clearer reluctance to use it (see more here) and that it’s important to communicate the Fed’s reaction function (more here). 

The recovery rally in bonds falls short of closing the opening gap lower in both Bund and TY futures, with a move away from pullback lows in energy prices helping keep the bear flattening impulse intact on European/UK curves and reintroducing some selling pressure in recent trade.

• Wider core global FI markets performing how you would largely expect. Tsys outperforming against the backdrop of firmer energy prices (lower import requirements), while EGB spreads vs. Bunds are back from session highs given the move off lows in equities/pullback from highs in crude. Gilts under the most pressure across the core complex.