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Ukrainian and Russian negotiators have agreed to swap prisoners and hold additional talks, but failed to make a significant breakthrough towards a ceasefire, following a second round of talks in Istanbul, Turkey. The talks lasted just over one hour, suggesting little discussion beyond the delivery of Russia’s ceasefire terms. 

• Ukrainian Defence Minister, and lead negotiator, Rustem Umerov, said Russia “continued to reject idea of unconditional ceasefire”, adding that “key issues at talks can only be resolved at level of leaders,” per Reuters.
• Umerov noted that Kyiv have received Russia’s terms for a ceasefire but said Ukraine cannot react immediately as they had only just received the memorandum.
• Umerov said, “Ukraine will be ready to decide on way forward once it has studied the Russian memorandum,” and said his delegation proposed another round of talks for the end of June.
• Lead Russian negotiator, Vladimir Medinsky, confirmed the delivery of Russia’s “steps to make full ceasefire” and noted progress on the exchange of prisoners and wounded soldiers.
• Reuters notes that Medinsky says Russia “suggested ceasefire for two-three days in certain area”, with expanding on where or when it could take place.
• Ukrainian President Volodymyr Zelenskyy said at a press conference alongside NATO Secretary General Mark Rutte in Vilnius a short time ago that the Ukrainian drone attack “seriously weakened [Russia’s] military,” and cited the mission as evidence that Ukraine’s drone industry can help with the future defence of Europe.
• As there has been no major breakthrough, attention now turns to US President Donald Trump, who is under increasing pressure to approve a punitive new package of sanctions that has broad bipartisan support in Congress. 

• The final mfg PMI for May has seen Fed Funds implied rates only modestly trim the hawkish shift higher seen overnight and early in the US session ahead of the release.
• A miss for the headline index (48.5 vs cons 49.5 after 48.7 in April) is caveated by a second prices paid reading close to 70, although weak construction spending data released simultaneously adds to the dovish takeaway.
• Cumulative cuts from 4.33% effective: 1bp Jun, 6.5bp Jul, 21.5bp Sep, 35.5bp Oct and 52.5bp.
• The Dec’25 rate is 1.5bp lower post-release.
• The SOFR implied yield of 3.24% is ~2.5bp lower post-release for back unchanged on the day. It returns to more firmly pushing what had been a range of 100bp +/-5bp range seen over much of the past three weeks.
• Dallas Fed's Logan ('26 voter) has reiterated a stance that reflects both her view and a clear consensus across the FOMC, with monetary policy seen to be well positioned, allowing patience. 

Goldman Sachs note that “Italian sovereign spreads have been well-behaved for some time, gradually tightening since Autumn 2022. The current 10-Year BTP-Bund spread is the tightest in almost five years. Some market participants find this benign pricing unlikely to last given that the debt-to-GDP ratio is expected to increase, sovereign real rates are rising, and defence spending is set to rise by 1% of GDP by 2027 because of the European geopolitical challenges”.

• However, they highlight that “while all the above are at play, we see three ameliorating factors”:
• “First, the funding support of the European recovery fund is set to continue until 2026 providing fiscal space of about 1.5% of GDP per annum”.
• “Second, real rates are increasing because of disinflation, U.S. tariffs, and rising long-end yields. Still, Italian real rates are approximately 100 basis points lower than the pre-pandemic average”.
• “Third, with one exception, all episodes leading to wider spreads in the last 10 years have been triggered by political instability. But at present this risk seems low in Italy”.
• “While the temporary tailwinds are likely to support the outlook for Italian debt this year, Italy is the only country in the EMU4 to experience negative productivity growth in the last two years despite the large fiscal support toward investment. A persistent upgrade of Italy's debt will require more structural improvement in its economy”.