The impact of geopolitics-related tail risks is definitely not what it used to be. Tariff drama: as we approach the 9 July deadline, the news flow regarding the extent of progress in trade negotiations is relatively constructive. US tax bill. The agenda becomes busy over the next few days as the 4 July deadline for the approval of the US tax bill looms. Regarding growth, the main reading at this stage is that the direction of the US cycle is clear (slowdown), but the timing, extent or speed of this is unclear.
The ECB Sintra Forum will offer a good stage to debate the structural, long-term challenges in central banking (flexibility in reaction function, forward guidance related communication,…), but we don’t expect this to be a platform for strong messages regarding the next monetary policy steps
Curves: Euro yields still look firmly supported and seemingly ready to test waters around the upper bound of the ranges: we still see the 2.65-2.70% reference as within reach for Bunds. This view is mainly supported by real rates. We still see a firm positive correlation between yield direction and slopes. The 10Y-30Y and 10Y-50Y are seizing this recovery in yields to test steepening levels not seen for years (above 15bp in the 10Y-30Y swap curve). In our opinion, this steepening bias can’t be assumed to be exhausted just yet
Our tactical approach on peripherals. i) We maintain our view that current spread levels are near the lower bound of the expected trading range for the summer period. However, should the scenario of a soon to come beneficial announcement on the EU–US tariff deal gain strength over the next few days (9 July deadline is getting closer) it would work as a positive catalyst—particularly for Italy. ii) Following the significant flattening of the peripheral–core box in the 2Y–10Y segment, we expect a tactical steepening this week in: i) the 1Y–5Y area of the Italian curve, especially if the Treasury proceeds with an ALM operation; ii) the 2Y–10Y segment of the Spanish curve, driven by the digestion of Thursday’s supply.
EGBs issuance - Mid-Year update. From an aggregate perspective, European issuers were able to make good progress in frontloading their FY25 gross funding needs (coverage c.63%). According to the 3Q/2H funding programmes: Germany and Belgium revised up their funding needs; Italy and the Netherlands affirmed their FY25 targets.
Weekly supply. In the bill market, total issuance of c.EUR20.9bn is expected in gross terms and c.EUR9.8bn in net terms (redemptions from France and Spain). In bonds, Germany, Spain and France will be active. Total issuance is expected to be c.EUR24.5bn in gross terms and almost flat in net terms (redemptions from Italy).