EUROPEAN FIXED UPDATE: Benchmarks firmer, unreactive to EZ HICP

USTs: +7+ ticks, 110-31

• Incrementally firmer with specifics light and action expected to be limited today given the partial post-Thanksgiving closures. Cash trade has resumed but, unsurprisingly, is limited with yields softer across the curve and a modest flattening bias in play.


• Coverage has now switched to Mar’25, with USTs holding at a 111-05 peak, a marginal best for the week with resistance next at 111-13 from the beginning of November, after which there is a bit of a gap until 112-00 and levels thereafter from late-October.

Bunds: +18 ticks, 134.55

• EZ Flash HICP printed as expected for the headline and core with the super core slightly cooler and the key services figure also moderating slightly, but still elevated at 3.9%. Overall, the data sparked no real move for EGBs while ECB pricing has shifted a percentage-point or two towards 25bps.


• As it stands, a December 25bps cut has a 85% probability ascribed to it with the remainder for a larger 50bps magnitude.


• Prior to this, Bunds were largely unreactive to the morning’s French data, though EGBs and USTs did see some upside to incremental highs just before, with Bunds hitting a 134.72 peak.


• Ahead, de Guindos is scheduled but we do not expect a text from the ECB VP.

OATs: +5 ticks, 126.32

• Holding just off a 126.14 trough, with the OAT-Bund 10yr yield spread at 83bps, a touch higher on the session but shy of the 90bps multi-year peak from earlier in the week.


• The in-focus EGB and the only major benchmark in the red at points this morning. Pressure which comes as PM Barnier provided concessions to the RN, saying he will drop the electricity tax increase. However, Le Pen says she still has red lines and Barnier has until Monday to adhere to them before she makes a decision on the budget as a whole.


• As such, France is once again on the precipice of political instability. As it stands, Barnier losing the confidence motion would not cause a new election (given proximity to the last one), and as such Macron would have to appoint a new PM and attempt to get a mandate around them before a new budget was brought forward.


• Given the above, some have questioned the logic of Le Pen going at this stage. Nonetheless, it is now largely a waiting game until we get the opinions of RN and also NFP on the amendments to the budget and then timing for the first attempted passage/confidence motion, possibly as soon as next week.


• In the meantime, S&P is scheduled to review France after the close. In May, they cut the rating to AA- from AA with a stable outlook. A cut that occurred in May given concerns around the French fiscal situation at that point.

Gilts: +45 ticks, 96.10

• A morning of gains for Gilts (coverage now on Mar’25), opened in the green and extended to a 96.10 peak shortly after with specifics light and fundamentals behind the move limited. Thereafter, Gilts settled slightly but have since surpassed the above peak by six ticks.


• Action which was possibly a function of Gilts catching up to a move higher in EGBs/USTs at the time, again drivers behind the move in peers were limited with it occurring a handful of minutes before the Flash French HICP numbers.


• For the UK, data showed marked upside in mortgage activity for October with both approvals and lending surpassing the forecast range. With approvals at their highest since Aug’22. Data had no discernible impact on Gilts.

29 Nov 2024 - 10:25- Fixed IncomeResearch Sheet- Source: Newsquawk