AFS Markets Blog: Midday 03/07/2026

• Meanwhile in markets, yield curves have moved in a bear-steepening pattern this week across the globe. In our neck of the woods, short-end Eurozone bonds found relief amid tempered ECB rate hike expectations;

• At 2.52 percent, the 2-year Bund yield is trading almost exactly where it started the week – erasing earlier gains. Throughout the week, ECB-speakers were showing second thoughts about whether another 25bps rate hike is still warranted now that Brent crude has fallen back to just above $70 a barrel. ECB-dated ESTR forwards have pared back tightening expectations as a result. A July hike has been almost fully priced out, while September is now a toss-up – with 13bps of tightening priced in;

• Across the Atlantic, US bond markets are closed today for Independence Day. The 2-year Treasury yield finished yesterday up 4bps on the week. Fed rate hike expectations have also been tempered following yesterday’s soft June labor market report. However, FOMC tightening timelines have been pushed further down the road rather than the pricing of hikes decreasing. The peak of the OIS forward curve – 10 months out – actually ticked up this week to 46bps. Hike pricing of year-end Fed funds futures slipped by 2bps, now standing at 27bps;

• Shifting to the long-end of yield curves, where moves have been far more pronounced. The 30-year Bund yield has risen by 10bps over the past week and at 3.51 percent the yield has broken back above its 100- and 200-day moving averages. In the US, the 30-year Treasury yield closed a hair below the psychological 5.00 percent level;

• In other news, French Finance Minister Lescure said his minority government will likely be able to pass a budget for next year. The primary objective of the budget is to reduce the headline deficit to below 5 percent of GDP for the first time since 2022;

• The latest European Commission forecasts put the deficit in 2027 at 5.7 percent – so the proposed reduction would be a much-needed victory. French OATs have logged a weak month, underperforming other Eurozone govvies. The 10-year OAT yield is up 5bps, whereas yields of other periphery nations (Italy, Portugal and Spain) are down 5-10bps;

• With exactly four months until the US midterm elections, let’s take a look at where things stand. According to pollsters and Polymarket punters, Republicans are set to lose their majority in the House of Representatives. The race for control of the Senate remains much tighter, with the GOP still holding the edge. For Democrats to pull off a win they must hold on to all of their current seats while flipping four Republican-held ones, requiring victories in several traditionally red states. Still, a Democrat upset is far from impossible – with Polymarket currently assigning a 45 percent probability;

• It is worth noting that the decline in President Trump’s net approval rating appears to have bottomed out since the Iran deal. Nate Silver’s polling average currently stands at -17.9 percent. While that is a slight improvement from the lows, it remains 5 percentage points below its pre-war level;

• Touching upon broader market commentary, the Stoxx 50 is up a quarter of a percent this morning. In FX, USDJPY is trading a touch above the 161.00 mark after spending much of the session below the handle;

• Looking ahead, the calendar is bone dry this afternoon. Next week brings a handful of data releases, with the US ISM Services PMI taking center stage on Monday. Besides that, we will be keeping an eye on the many central bank speakers on the calendar, and the NATO summit in Turkey.

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