EUROPEAN FIXED INCOME UPDATE: OATs steady after French government collapse

USTs: -6.5 ticks

• Mar'25 USTs are seeing a modest pullback from yesterday's ISM-induced rally in US paper. The release further cemented expectations for the Fed to cut rates later this month with odds of such a move @ 73% before likely pausing in January. Comments from Fed Chair Powell yesterday did little to stand in the way of this pricing. A dovish outturn for NFP tomorrow could seal the deal on the FOMC.


• Mar'25 UST has been as low as 111.00+ but is still some way north of yesterday's 110.18 trough. The US yield curve is a touch higher with yields in the belly marginally higher than elsewhere. ING flags the importance of the 2yr yield slipping below 4.15% yesterday after recent failed attempts, this could pave the way for a move towards 4% and possibly below. The 10yr yield is back above 4.2% after delving as low as 4.165% earlier in the week.

Bunds/OATs: Bunds -13 ticks. OATs U/C

• French paper remarkably calm after yesterday's collapse of the French government. The outcome was as expected and attention now turns towards who, if anyone Macron can appoint as PM (there is currently no obvious replacement candidate). The main kicker is that the 2024 budget will likely be rolled into 2025 and policy will likely end up being less restrictive than initially thought. In response to recent events, Moody's has cautioned that the no confidence vote is "credit negative". The GE/FR spread has narrowed to just below 81bps having peaked just shy of 89bps on Monday with last week’s 12yr high at 90bps just above.


• From a broader Eurozone perspective, pricing of a 50bps move at next week's ECB meeting continues to be unwound with odds of a 25bps move now @ 86%.


• Dec'24 Bunds are currently within yesterday's 134.66-135.28 trading band with the corresponding 10yr yield around the 2.08% mark vs. yesterday's 2.10% peak.

Gilts: -6 ticks

• Marginally softer and in-fitting with price action in global peers. From a UK-specific standpoint, yesterday's FT headline on Governor Bailey caused a stir, however, desks are broadly of the view that his comments over four rate hikes next year were taken out of context as he was referring more to market pricing than his own view. Today's DMP release saw expectations for CPI inflation a year ahead rose from 2.6% to 2.7% in the three months to November, expected year-ahead wage growth dropped by 0.1ppt to 4.0%; BoE pricing was little changed.


• Mar'25 Gilts have slipped below the 96.00 mark but remain north of yesterday's 95.50 trough with the corresponding 10yr yield back above 4.25% but shy of yesterday's near 4.3% peak.

05 Dec 2024 - 10:20- Fixed IncomeData- Source: Newsquawk