EUROPEAN FIXED: OATs await the motions against Lecornu

OATs: -15 ticks, 123.24

• Awaiting results of the no-confidence motions against PM Lecornu, no specific time for the votes. Into the motions, OATs trade slightly heavier than Bunds with the OAT-Bund 10yr yield spread wider today and as high as 78.5bps. But, still down from this week's c. 84bps peak and the YTD high at 88.2bps set during the most recent bout of turmoil. As a reminder, the 2024 high was 90bps.


• Of the two motions, the one filed by La France Insoumise (LFI) has a chance of passing; full Newsquawk primer available on the feed. For the motion to pass, a majority in the Assembly of 289 votes is needed. As of last night, the tally of LFI, National Rally (RN) and various members of other parties including and pertinently some members of the Socialist Party (PS), despite the recent pensions agreement.


• In total, outlets such as Politico and France24 estimate the number of votes in favour of censure (i.e. against PM Lecornu) will be in a 265-280 range; shy of the 289 needed.


• The motions failing (i.e. the Assembly has confidence in Lecornu) would likely spark some modest narrowing of the spread.


• Conversely, one of the motions succeeding (i.e. no-confidence in Lecornu) could see notable widening as it would likely jeopardise the deal struck between the bloc and PS in recent sessions and once again increase the likelihood of legislative elections. As it stands, betting markets price the odds of legislative elections at just over 50% by year-end.


• Elsewhere, no move to the morning’s French tap which, while taken down well enough and without reaction, was a little softer than the last very strong outing. An outcome that likely reflects the heightened political and by extension fiscal uncertainty France is currently facing.

Bunds: -6 ticks, 130.08

• A slightly softer start to the day. Bunds have at most posted losses of 21 ticks at a 129.93 trough. However, this has since moderated a touch to losses of just under 10 ticks in a 129.93 to 130.14 band.


• Specifics for the benchmark were a little light, no supply from Germany though the Spanish tap was received well enough and spurred no discernable reaction. Elsewhere, the final Italian inflation print for September was unrevised.


• Ahead, the docket for Europe ramps up with numerous ECB speakers scheduled and headlined by Lagarde and Lane, though we do not expect a text from either.

Gilts: -4 ticks, 92.40

• Opened unchanged at Wednesday’s 92.43 close. External leads prior to the open were a little mixed, with USTs firmer while Bunds were softer but both within reach of the unchanged mark.


• The morning’s main update for the UK was August growth data. Overall, the series came in broadly as expected though the return to growth for the headline was offset by a downward revision to negative territory for July’s M/M figure. The data doesn't change the narrative for the BoE of a hold in November and a cut being possible in December. With a move dependent on how the next data points print (particularly CPI) and the November Budget.


• On the budget, a handful of updates to digest. Firstly, a report by the IFS that Chancellor Reeves needs headroom of just under GBP 50bln vs the GBP 9.9bln she gave herself last time in order to have better than 50-50 odds of avoiding lifting taxes and/or cutting spending once again at a later date. Elsewhere, the Guardian adds to recent reports around taxes for the wealthiest members of society while the FT previews the launch of a pension funds initiative next week.


• Amidst all this, Gilts have come under a little bit of pressure since opening. Potentially a function of the higher headroom assessment by the IFS adding to fiscal concerns or the benchmark following Bunds. Irrespective of the driver, the move is only modest in nature thus far.

USTs: +4 ticks, 113-12

• Slightly firmer thus far, in contrast to EGBs and Gilts. However, magnitudes are slim with gains of just 6+ ticks at most in a 113-08 to 113-13+ band. A parameter that is entirely within Wednesday’s 113-06+ to 113-17+ range.


• Thus far, the main points of focus are US President Trump saying they are in a trade war with China. Though, commentary this morning from China’s Commerce Ministry has perhaps been a little more conciliatory than we have seen in recent sessions.


• Elsewhere, the shutdown continues with a former Politico journalist highlighting that the US remains nowhere near ending the shutdown. A point of particular note as the Senate is scheduled to leave for one week after today’s session.


• Ahead, Fed speakers in focus with six officials appearing a total of nine times across the day. Additionally, we await the Philly Fed manufacturing report, which follows this week's upside surprise seen in the Empire manufacturing survey, and ahead of PMI data due next week.

16 Oct 2025 - 10:10- Fixed IncomeData- Source: Newsquawk