EUROPEAN FIXED UPDATE: 10yr JGBs soar then falter after Takaichi while OATs were rolled by Lecornu resigning

JGBs: -5 ticks, 135.83

• 10yr JGB futures surged at the opening of trade, lifting from 135.88 to a 136.53 session high. In reaction to the appointment of Takaichi as LDP leader, with the market reacting to her preference towards looser fiscal and monetary policy.


• Thereafter, the 10yr JGB pulled back and reverted to below Friday’s close, hitting a 135.72 low with downside of just over 15 ticks at most on the session. A move that occurred as the Japanese curve, led by the ultra long end, began to steepen as markets took the view that Takaichi’s appointment will delay BoJ tightening and policy normalisation, but not indefinitely.


• Amidst this, the odds of a BoJ hike at the October meeting have pulled back with markets now ascribing around a 75% chance of a hold. In contrast to pricing last week being in favour of a hike this month.


• As a reminder, Takaichi ran on an ideologically nationalistic/conservative platform but from an economic perspective one that emphasised looser fiscal and monetary policy, stronger security policy, and higher defence spending.


• The next pertinent update will be from BoJ’s Ueda who is speaking on October 8th, followed by Tamura on the 16th, Takata on the 20th and Himino on the 21st. All before the October BoJ announcement on the 30th.


• Amidst this, the Diet returns mid-October with a vote to appoint LDP’s Takaichi as PM due thereafter.

OATs: -72 ticks, 120.84

• Under pressure from the start of trade given the weekend updates by President Macron and PM Lecornu. Specifically, they announced a cabinet that was regarded as being a continuation of recent attempts, with Lescure set to be the new Finance Minister and Le Maire as Defence Minister.


• Appointments that drew a lot of criticism from other parties in the French political system, with National Rally's (RN) Bardella saying that the cabinet is a repeat of recent ones and, much more pertinently, the Socialist Party (PS) saying that they would vote against the latest government. As a reminder, the support of PS is the main viable route for the Centrist-bloc to secure enough votes from the Left to actually form a working government.


• Updates that had OATs trading lower by around 40 ticks in the first part of the morning, with the OAT-Bund 10yr yield spread wider and just over 84bps.


• Since, PM Lecornu has presented his resignation to President Macron. A resignation that sent OATs to a 120.61 low with downside of just under a full point at worst. As such, the OAT-Bund 10yr yield spread widened to 88.2bps peak for the session, notching a fresh YTD peak and approaching the 90bps 2024 high.


• We now look to see whether Macron attempts to appoint another PM, if [either straight away or after further failed PM attempt(s)] legislative elections are called or if the pressure pushes Macron to resign. On the latter, Macron has made very clear he intends to serve out all of his term, the Presidential election is scheduled for approx. April 2027.


• As a reminder, Next rating updates are: Moody’s (Aa3, Stable) 24th October, S&P (AA-, Negative) 28th November.

USTs: -5+ ticks, 112-16

• Under modest pressure this morning but within recent ranges. Down to a 112-13+ base, just above last week’s 112-08+ trough.


• For the most part, the debt market is focussed on above updates initially from Japan but since from France. Ahead, the US docket is a light one on account of the ongoing shutdown.


• On the shutdown, the weekend updates were not constructive. As both House leaders accuse the other side of being responsible for the shutdown, with Jeffries saying that the Republicans have gone “radio silent” while Johnson said the Democrats are “not serious” when it comes to finding a solution.


• Otherwise, US updates include the latest on Hamas where Israel and Hamas are set to begin mediated negotiations today in Egypt. A development that comes after Trump gave Hamas until Sunday night to come to the table for talks.

Bunds: -22 ticks, 128.46

• Began the morning under modest pressure, reflecting the price action seen across the fixed income space in light of the pronounced turnaround seen in JGBs by then.


• Thereafter, the complex derived a bit of a haven bid on the resignation of French PM Lecornu, lifting to a 128.76 peak with gains of nine ticks at best. However, this proved fleeting and Bunds have since reverted back to pre-Lecornu levels of c. 128.46.


• No significant move to the latest EZ Sentix figure or Construction PMIs.

Gilts: -44 ticks, 90.50

• Lagging Bunds and USTs but faring better than OATs. Gapped lower by 22 ticks and then slipped 23 more to a 90.51 low just before the French PM resigned, then seeing some, relative, allure over the next 20/30 minutes before falling back towards session lows.


• Pressure for the UK comes as we count down to the Autumn Budget. Updates over the weekend include a report in The Times that the domestic economy could be on shakier ground than initially assumed, as a "chunky" revision to ONS data has increased doubts about how much households have been saving.


• On the monetary side of the equation, BoE’s Bailey will be speaking at Scotland's Global Investment Summit, from which we do expect a text release.

06 Oct 2025 - 10:10- Fixed IncomeEU Research- Source: Newsquawk