FED: US TSY 29Y-6M TIPS AUCTION: NON-COMP BIDS $57 MLN FROM $8.000 BLN TOTAL

July's Philadelphia Fed Nonmanufacturing Business Outlook Survey showed strong improvement vs a soft June in one of the most impressive reports in the past few years, with the regional activity index rising to 7.4 from -25.8 (no analyst consensus). 

• July's figure represents the first positive reading since October 2024 and the highest outright in 50 months (May 2022), a big swing from June's 13-month low. Combined with the neighboring NY Fed services survey which also saw its best activity reading since May 2022, it's a very strong start to July for regional Fed nonmanufacturing reports.
• The current general activity index at firm level rose to an 11-month best 17.5 from 2.4.
• Sales/revenues rose 4 points to 23.5 for the best since January, New orders rose 13 points to 12.5 for the best since August 2025, and full-time employment rose 17 points to 12.4 for the best since January 2024 (part-time rose 12 points to 12.1 for the best since December 2025; the average workweek rose 10+ points to 10.8). Capex measures also jumped.
• And optimism abounded in the 6-month ahead assessments: for regional activity it jumped to an 18-month best 15.7 from -10.5; for firm level it soared to 41.9 from -0.3 for a 20-month high (to put that diffusion index another way, 49% of firms expect higher activity, just 8% expect decreases).
• Inflation readings were mixed, with prices paid ticking up to 28.2 from 25.8 prior (which had been a 16-month low) to remain on the low side of the 5-year average and recent peaks above 40; prices received (the more relevant for consumer price implications) dipped to 18.4 from 20.2, remaining on the slightly high side but within normal ranges.

SOFR & Treasury options trade outlined below:, mid to late morning flow saw a pick-up in call and put spread sales, position unwinds after underlying futures extended morning lows (US/Iran tension heating up, crude higher}. Projected rate hike pricing has risen vs. late Monday levels (*): Jul'26 at +5.5bp (+4.1bp), Sep'26 at +20.4bp (+18bp), Oct'26 at 27.5bp (24.6bp), Dec'26 37.7bp (+34.3bp).

• SOFR Options:
• -6,000 3QU6 95.50 puts, 1.5 vs. 96.03/0.08%
• -6,000 SFRV6 95.68/95.75 put spds, 1.62 ref 95.92
• -15,000 SFRZ6 95.37/95.81/95.87 broken put trees, 1.0 net ref 95.915
• +15,000 SFRU6 96.25/96.37 call spds, 1.37-1.5 ref 96.095
• -5,000 SFRU6 96.25/96.187 call spds, 2.0 ref 96.09
• +5,000 SFRZ6 95.75/95.87/96.00 put flys, 1.5 ref 95.925
• +4,000 SFRU6 95.75/96.00 put spds, 3.5 ref 96.11

Gilts regained some ground on EGBs Tuesday following Monday's selloff, but the space as a whole remained under pressure.

• UK yields dipped a little on the open after Monday's underperformance on fiscal/political risk concerns (new PM Burnham eyeing fiscal "flexibility"), while German yields drifted higher for most of the session in tandem with a continued rise in oil prices (front Brent eclipsing $90/bbl and on track for the highest close since mid-June).
• The intraday peak in European yields came about 2 hours before the cash close, alongside oil prices rising on reports that two Saudi oil tankers had turned around in the Red Sea (following Yemeni threats against vessels using Saudi ports).
• 10Y Gilt yield rose as high as 5.056% with Bund at 3.185%, both the highest intraday since mid-May, before fading modestly into the close.
• In the first set of key UK data this week, both the unemployment rate and private sector pay ex-bonus were in line with expectations, while there was a stronger than expected outturn for the 3m employment change - but it is all unlikely to change any MPC members vote at next BOE Thursday's decision. (MNI's Employment Insight is here.)
• Elsewhere, the July German ZEW survey saw a better-than-expected expectations component and an in line current situation component; the Q2 ECB bank lending survey overall showed a moderate net tightening of credit standards for loans to firms.
• The German curve saw yields rise in parallel, while the UK curve leaned bull steeper (though did not come close to retracing Monday's yield rise). Periphery/semi-core EGB spreads were little changed.
• Wednesday's focus is UK CPI (preview here), with the ECB decision looming Thursday.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.1bps at 2.803%, 10-Yr is up 1.3bps at 3.163%, and 30-Yr is up 1.2bps at 3.662%.
• UK: The 2-Yr yield is down 0.8bps at 4.391%, 5-Yr is up 0.3bps at 4.582%, 10-Yr is down 0.2bps at 5.03%, and 30-Yr is down 0.3bps at 5.744%.
• Italian BTP spread down 0.1bps at 82.1bps / French OAT up 0.5bps at 79.9bps