EUROPEAN FIXED UPDATE: Benchmarks pressured post-ECB, OATs await the new French PM

USTs: +1 tick, 110-12

• Steady overnight with specifics light and the docket ahead also limited as the countdown to the FOMC begins.


• USTs were unable to lift off lows in APAC hours after a lacklustre 30yr tap which tailed notably and printed a soft cover.


• Action in the European morning limited to a 110-09+ to 110-14 range. Yields little changed overall with no overt flattening/steepening bias thus far.

Bunds: -48 ticks, 134.87

• Began the morning in the red with EGBs trading in proximity to Thursday’s lows, after the ECB was judged to not be as dovish as some had hoped for.


• A narrative added to by Bloomberg sources that the ECB is prepared for 25bps moves at the next two meetings, while 50bps is an option in but only in case of an emergency; a view which is at odds with market pricing which currently implies around 39bps of easing for the Jan'25 meeting.


• ECB speak this morning includes Muller saying the period of strong inflation is behind, Kazaks saying the direction is clearly down and the influential Villeroy remarking that there are more cuts to come.


• Since, the downside has extended slightly with Bunds at lows of 134.80 having faded below 135.00 and initial highs of 135.15. Support features at 134.59 while any rebound awaits resistance around 135.50.

OATs: -37 ticks, 125.19

• Once again, we are awaiting French President Macron’s announcement as to who the next PM will be.


• Though, it looks all but certain that it will be former Justice Minister Francois Bayrou who has been a frontrunner in recent sessions.


• Once Bayrou is appointed, it remains to be seen if he will command a bigger support base than Barnier did with indications thus far suggesting that this will not be the case. As such, we await guidance from Bayrou (or whoever the next PM is) as to whether they will try to compromise with the left- or right wings of French politics to forge a way forward on the budget.


• Ahead of the confirmation OATs are trading largely in-line with peers with the OAT-Bund 10yr yield spread steady around the 76bps mark.

Gilts: -16 ticks, 94.81

• Initial leads were bearish given the above but offset by a particularly soft set of UK growth data for October, with GDP missing across the board Services showing no growth while both Production and Construction fell in the period.


• Within the release, ONS highlighted the Autumn Budget appeared to have an impact though it is difficult to quantify with reports of customers waiting for the budget to pass and others bringing forward activity ahead of it.


• Overall, the release is unlikely to have much bearing on the BoE’s calculus with the focus instead on next week’s key inflation and wage metrics ahead of the December meeting; post-GDP, pricing for December saw a very slight dovish shift from a 10% chance of a 25bps cut to around 13%.


• Gilts in the red, though not as soft as EGBs are. Opened at a 94.89 session high before fading to a 94.66 trough, benchmark has since settled between those marks and looks to next week’s packed docket for direction.

13 Dec 2024 - 10:00- Fixed IncomeData- Source: Newsquawk