BONDS: Twist Steepening Theme Following U.S. Fiscal Fear & EZ PMIs

Gilts twist steepen, with cues from Tsys driving much of the price action. U.S. policy uncertainty continues to dominate newswires.

• Futures 92.20 last (91.96-40 range).
• Initial support and resistance unchanged at 91.73/92.63.
• Yields 3bp lower to 6bp higher, curve twist steepens.
• Long end yields still 20-30bp off April closing highs.
• 2s10s ~9bp below closing cycle highs, last 69.7bp.
• 5s30s testing cycle closing highs, last 135.7bp. If we break higher, there is little resistance to note until 150bp.
• Risks seem titled towards continued steepening given the UK’s economic and fiscal fragility, while the macro environment adds further weight to that view.
• BoE-dated OIS shows 89bp of cuts through year-end after briefly printing ~91bp this morning.
• BoE MPC member Greene didn't use any of the recent MPC buzzwords ("careful", "cautious" or "gradual") when describing her forward-looking view in an interview with BBG TV, perhaps signalling a move away from her traditional position at the hawkish end of the MPC spectrum. Markets looked through this given the recent dovish repricing.
• Post-holiday adjustments and macro cues are set to remain at the fore today.
• Wednesday will see Brightmine wage data, PMIs and public finance data cross. The DMO will provide an updated DMO remit revision in the wake of the latter. We will provide greater colour on this later today.
• BoE-speak from Bailey, Pill & Breeden is also scheduled for Wednesday.

• Adding to earlier comments on EURUSD, US President Trump’s continued attempt to weigh-in on Fed decisions helped see the euro step to fresh record highs in nominal trade-weighted terms yesterday (using Citi’s daily series).
• It’s someway off past highs in real terms, with lower historical inflation than many of its trading partners, yet is still trading at its 99th percentile over both five- or ten-year rolling periods that we often look at – see table.
• Interestingly though, whilst it’s unsurprisingly the most stretched DM currency vs these historical ranges, GBP, CHF and SEK (just) see a more elevated REER relative to its five-year average. GBP leads on this alternative approach, sitting 6.2% and 7.5% higher than five- and ten-year averages vs 3.9% and 4.7% for the euro.
• Back on EURUSD specifically, you can see the clear disconnect between fundamental driver such as rate differentials and relative terms of trade, with this new safe haven factor likely at play since Trump's Apr 2 “Liberation Day” tariff announcements.