EGBS: Weaker Amid Light Regional Calendar; 10s30s Breaks Recent Range

• USD/JPY got a jolt in the arm early Monday as the US and China trade negotiation teams confirmed an aggressive cut to trade tariffs. While the drop in tariffs is only entering a 90-day pause, markets are taking the step as a strong sign of intent that both sides want to maintain as healthy a trade relationship as possible - helping stimulate strong equity, USD and CNH gains.
• This leaves JPY comfortavly the poorest performing currency in G10 as the US/China headlines on reducing tariffs have significantly boosted risk sentiment across global markets. The yen's negative correlation to moves in equity markets has been in prime focus, with the hawkish repricing in core fixed income providing an additional headwind for the low yielders. Broad US dollar strength has translated into a sharp adjustment higher for USDJPY, exacerbated by a clean break of the 50-day EMA resistance that had capped the price action last week.
• Similarly, EUR is sliding. Having been one of the stronger currencies through trade tumult on relative haven status as well as the EU's perceived library of counter-tariff measures, the EUR is now performing poorly as while countries including the UK, Switzerland and China have taken notable steps toward a cleaner tariff regime, there are few signs of progress with Brussels.
• A BoE watcher conference will be carefully watched today, with appearances from BoE's Greene, Mann and Taylor still set to speak. Fed's Kugler similarly talks on the US economic outlook. 

Gilts hold early losses after being pressured by the dialling down of Sino-U.S. trade tension and news of a Putin-Zelenskiy meeting being scheduled for later this week.

• Futures traded as low as 91.69 around the open, before recovering to the 91.90 area.
• Both the May 9 (92.07) & April 17 (91.73) lows were pierced, with next support located at the April 15 low (91.43).
• Yields 4-7bp higher, curve flattens.
• 2-Year yields trade as high at 3.997%, next upside area of interest located at the April 17 high (4.015%).
• 10s as high as 4.642%, next area of upside interest located at the April 15 high (4.672%).
• 2s10s comfortably within the range witnessed since early April, last ~64bp. The same holds true for 5s30s, curve last trades at ~128.2bp.
• BoE-dated OIS covering the next 7 meetings sit 1-8bp less dovish on the day.
• 3bp of cuts priced through June, 21bp through August, 30bp through September, 45bp through November and 51bp through year-end.
• SONIA futures off lows but still 0.25-11.5 lower on the day.
• Comments from BoE’s Lombardelli (outlined in recent bullets) had little impact on markets, leaving macro cues at the fore.
• Further MPC comments are due at the BoE Watchers’ conference (Greene, Mann & Taylor), ahead of the labour market report (due 07:00 London on Tuesday).

The German curve has sharply bear flattened this morning, with risk sentiment supported by a temporary reprieve in US/China tariffs following this weekend’s meetings.

• EGBs opened on a soft note after the US touted “substantial progress” with China, and the move extended after the announced tariff cuts exceeded expectations.
• Year-end ECB rate cut expectations now sit at 48bps (vs 60bps at Friday’s close), pushing Schatz yields up 10bps on the session to ~1.90%.
• The German 2s10s curve is down 3.7bps, with 10s30s down 2.8bps at typing.
• Bund futures are -79 ticks at 129.97, trading close to intraday lows. Initial support at 129.92 (Apr 11 low) has held for now. Clearance of this level would expose the Apr 10 low at 129.02.
• The short-end may have also been pressured by ECB Executive Board member Schnabel’s hawkish speech over the weekend. Schnabel provided her arguments for holding rates at current levels. However, she did outline the conditions required for her to support more easing.
• The BTP/Bund spread reached a fresh year-to-date low of 102bps in the immediate aftermath of the US/China tariff reprieve details, but has since widened back to opening levels of around 104bps.
• This week’s Eurozone data calendar is fairly light, with the second estimate of Q1 GDP due on Thursday. This will keep focus on the trade complex, and non-EZ macro data (e.g. US CPI tomorrow).