EUROPEAN FIXED UPDATE: Global paper move higher, OATs outperform awaiting PM Lecornu later

USTs: +2.5 ticks, 112-24

• USTs are trading firmer by a few ticks, following the positivity seen across global peers. Currently trading at the upper end of a 112-19+ to 112-25+ range. Nothing really driving sentiment today from a US perspective, but upside, which comes after the safe-haven related upside seen in the prior session. In brief, a report via The Information suggested that Oracle may be facing financial challenges renting NVIDIA chips – this sparked pressure across US equity markets and flows entered US paper. Sentiment may also be boosted by a strong 3yr auction – but this had limited impact on price action at the time. Now traders await a 10yr outing; as a reminder, the last sale was strong, receiving strong demand and a 1.3bps stop-through.


• In terms of levels, a breach above 112-30 could see a potential retest of the prior weeks’ high at 112-31+; thereafter, 113-00 marks the high from 24th September 2025.


• The ongoing US Government shutdown remains a focal point for trades, as it stands, a lack of progress. US President Trump has recently said that he will provide clarity about the eliminated jobs “in four or five days”; elsewhere, sources via POLITICO suggest that Trump's administration has pushed back its plans to roll out economic support for farmers this week due to the government shutdown.


• On the Fed, dove Miran reiterated his calls to cut rates, whilst suggesting he is optimistic on growth. On the other hand, Kashkari took a more cautious approach, suggesting it is too soon to know if inflation will be sticky from tariffs.


• Looking ahead, markets will await the FOMC Minutes for the September meeting; in brief, the minutes will be eyed to see the views on the rate path at the FOMC and what the split is like on who is more concerned about the labour side of the mandate or the inflation side. Minutes aside, commentary via Fed’s Musalem, Barr, Goolsbee & Kashkari are also due.

Bunds: +26 ticks, 128.79

• Bunds are firmer today, in-fitting with the upside seen across peers. Upside today began into German data, before taking another leg higher on the release itself – an upward bias which has held throughout the morning thus far. Bunds currently trade just off highs in a 128.49 to 128.87 range; another leg higher could see German paper top the 129.00 mark and then potentially test 129.02 (the high from 18th Sept).


• To recap that German data in brief, Industrial Output printed well below expectations at -4.5% (exp. -1%), though the accompanying release highlighted some caveats; "The marked decrease may be explained, at least in part, by the combination of annual plant closures for holidays and production changeovers”. The upswing seen earlier in the year looks increasingly associated with US-tariff related front loading – following the data, ING suggests that there is now an increasing likelihood of another quarter of contraction for the German economy.


• Ahead focus will be on a German 2041 and 2042 Bund auction. Recent Bund auctions have been fairly soft and have sparked some modest pressure in the benchmark, when the results print. A point that is worth highlighting for Bobl taps, though the sale on Tuesday, despite being technically uncovered, spurred little reaction.

OATs: +51 ticks, 121.50

• OATs are the relative outperformer today, as outgoing PM Lecornu aims to hold last-minute talks with opposition parties. To recap the situation in France, President Macron asked the PM to hold talks with the opposition parties, giving him a deadline until Wednesday evening. In a presser today, Lecornu said he will present his findings to Macron later this evening; overall, his comments leaned more positively, suggesting that the talks so far show a willingness to get this budget through by year-end. Moreover, Lecornu has suggested suspending President Macron’s pension reforms, which would be welcomed by those on the left. The outgoing PM will be speaking again at 19:00 BST.


• On the presser itself, some very marginal upticks were in OATs; the OAT-Bund 10yr spread has tightened from recent highs, currently trading around 83.6bps vs previous close at 86.15bps.

Gilts: +20 ticks, 128.79

• Gilts are in the green alongside peers. Currently trading in a 90.69 to 90.83 range; a breach higher above the 91.00 mark could see a potential retest of 91.06, which marks the high from 3rd October 2025.


• UK press remains heavily focused on the looming Autumn Budget; most recently, the FT reported that Pimco and BlackRock have called Chancellor Reeves to build a larger buffer in the UK public finances in the November Budget to avoid years of uncertainty over tax and spending decisions. However, a factor boosting sentiment is the ONS revising down UK Government borrowing by GBP 2bln after a recent data error - which may alleviate some of the borrowing-related pressure the Chancellor faces.


• The UK 2029 outing garnered a b/c just shy of the 3.00x mark, with an avg. yield of 4.095%; a decent outing, but ultimately had limited impact on price action, with UK paper continuing to reside near recent highs.

08 Oct 2025 - 10:20- ForexEU Research- Source: Newsquawk