EUROPEAN FIXED UPDATE: In the red given the global risk tone, OATs lag after S&P

JGBs: -45 ticks, 136.00

• Under modest pressure, down to a 135.89 trough taking out the 136.02 base from Friday.


• Downside comes amid a constructive global risk tone, weighing on the fixed income space broadly, a tone that saw strength in Japanese stocks overnight.


• Elsewhere, the weekend saw coalition building updates as Ishin and the LDP came to an agreement, this should allow LDP’s Takaichi to secure premiership at Tuesday’s vote. Note, Ishin+LDP leaves Takaichi a few votes shy of the majority threshold.


• The above has led to a resumption of the Takaichi trade which points to elevated long-term yields and a steepening of the curve; as a reminder, around the time of the LDP election Goldman Sachs wrote that Takaichi securing the PM position would present an upside risk to long-end JGB yields, saying a 10-15bps increase in the 30yr was a plausible first move.

OATs: -27 ticks, 122.88

• In the red alongside peers but lagging at most points. Pressure that comes after S&P cut France on Friday to A+ from AA-, remarking that uncertainty over France’s finances remain elevated and that unless a significant deficit-reducing measure is unveiled, the consolidation will be slower than previously thought.


• An update that has sent OATs to a 122.74 base with losses of just over 40 ticks at most. While lower, the benchmark remains comfortably clear of last week’s 121.82 base and the 120.61 low from the week before that. As such, the OAT-Bund 10yr yield spread has widened, but remains within familiar levels; at a 80bps peak, but someway shy of the YTD 88.2bps high and the 2024 90bps watermark thereafter.


• For France, PM Lecornu surviving the two confidence motions last week and successfully presenting a draft plan means the negotiation process for the 2026 budget is now underway and expected to last for several weeks. Key to this will be the pension reform suspension demanded by the Socialists (PS) and how Lecornu balances that with required deficit trimming measures, all while holding together the centrist-alliance and keeping PS happy.

USTs: -3 ticks, 113-13

• In the red. Weighed on by the general risk tone after the trade updates from Trump. In brief, the US President commented that 100% tariffs are not sustainable and that he will be meeting with Chinese President Xi. Furthermore, Treasury Secretary Bessent spoke with Chinese VP He, a talk described as constructive and ahead of a meeting in the near term.


• Trade aside, US updates are a little light with the shutdown still going and geopolitics dominating a lot of the newsflow. While the shutdown is on and data remains suspended, we will get the September CPI release on Friday for social security adjustment purposes, a release that comes ahead of the October Fed (blackout now underway), ahead of which markets near-enough fully price in a 25bps cut.


• Down to a 113-10 low with losses of five ticks. Below Friday’s 113-13 base but clear of a handful of recent lows before 113-00 itself and last week’s 112-30 trough.

Bunds: -16 ticks, 129.85

• Limited newsflow of note for Germany thus far with the broader macro tone dictating fixed income action, as discussed above.


• Bunds down to a 129.76 base at worst; similarly to peers, this takes the benchmark below several levels from last week but still clear of the 129.13 trough from last Monday.

Gilts: +1 tick, 92.47

• Opened lower by a handful of ticks and then slipped to a 92.38 base, reflecting the above bias. Since, the benchmark has picked up and is teetering on a move into the green.


• The modest outperformance is perhaps a function of weekend press reports around the upcoming budget, with pension firms making commitments and further chatter around measures Reeves could take. Furthermore, BoE’s Greene said the rate cutting cycle is not over. Updates that have seemingly tempered the bearish bias seen globally, but only marginally.


• For the BoE, markets continue to ascribe a slim chance of a cut in November with just a 10% chance of a move currently implied and the odds of a move in December still hovering around 50-50; as a reminder, we get UK CPI this week.

20 Oct 2025 - 10:05- Fixed IncomeEU Research- Source: Newsquawk