[MARKET ANALYSIS] Yields gradually slip off best levels, Gilts and EGBs digest domestic PMIs

• Global fixed benchmarks are mixed this morning, but with price action tentative and trading on either side of the unchanged mark. Earlier action was muted, though US30yr has been gradually falling as the morning progressed. The US 30yr resides at 5.23% vs yesterday’s peak at 5.26% and off near-term highs at 5.33%.
• USTs (+3 ticks) hold within a very narrow 108-14 to 108-17+ range. The lack of news flow and the ongoing summer lull have led to thin ranges, but later markets will have US PMI metrics to digest, as well as an appearance from President Trump. Elsewhere, the US10yr (4.68%) also moves lower this morning, lacking a clear catalyst. A factor which has led to a decline in the USD, whilst spot gold and Bitcoin have moved to highs.
• Bunds (+1 tick) are also trading steady this session. The European benchmark has had regional and EZ-wide PMI metrics to digest this morning, whereby the French and German releases were subject to poor Services components, whilst Manufacturing topped expectations. The French PMI release saw OATs knee-jerk higher by a handful of ticks; similarly, Bunds moved on their domestic release; nonetheless, the upside was fleeting. However, the EZ-wide figure saw both the Manufacturing and Services figures top expectations. The accompanying release highlighted that “although high prices reportedly continue to dampen demand, price pressures have shown signs of further easing”. The report concluded by suggesting that data plays in favour of the hawkish bias.
• Elsewhere in Europe, the EZ Negotiated Wage Growth (Q2) figure fell from the prior, which will be welcomed by policymakers at the ECB – but unlikely to push away calls for a September hike. On the inflation front, the latest ECB SCE saw 1- and 3-year expectations fall from the prior.
• Gilt (-4 ticks) price action essentially echoes the above. UK Retail Sales were weak, whilst the PMIs mildly topped expectations. The accompanying report, “the data suggest the Bank of England looks likely to keep a hawkish bias but will stay cautious, holding off any rate hikes until the growth and inflation trajectories become clearer”. The release saw downticks of c. 7 ticks, but this proved fleeting.

Wraps of this kind, thin summer sessions where benchmarks drift on either side of unchanged, typically resolve around the long end first: the 30yr slipping off near-term highs while the front of the curve sits in a narrow range is the classic shape of duration-led positioning rather than policy repricing, since nothing in the data flow challenges the near-term path. The pattern worth noting is the fleeting reaction to PMI prints across Gilts, Bunds and OATs: knee-jerk moves of a handful of ticks that fade within minutes are characteristic of illiquid August tape, where modest order flow exaggerates moves that carry no follow-through. The underlying tension is a familiar one for the region: soft wage and survey-based inflation expectations pulling against hawkish central bank rhetoric, which in past episodes has kept a floor under front-end yields even as the long end rallies. The divergence between falling yields, a softer dollar and gold and Bitcoin at highs is a recognised configuration when rate expectations ease without a growth scare, with the dollar carrying the adjustment through the rate differential channel. The follow-ons are the US PMI prints and any presidential remarks, which in this kind of thin tape have tended to produce outsized but reversible moves.