EUROPEAN FIXED UPDATE: Japan's emergency LDP election takes the political focus, though France's confidence motion will reclaim it this evening

JGBs: +8 ticks, 137.09

• PM Ishiba has announced that he will be stepping down as LDP leader and by extension PM. As such, a new LDP leadership vote is expected to take place on October 4th, according to Reuters sources.


• Ishiba’s resignation is not a huge surprise, as the tone in recent weeks had been moving towards him stepping down as various high-ranking LDP officials had announced their intention to resign, taking responsibility for the lower house election result.


• The announcement by Ishiba saw long-end yields climb amid concern that Ishiba’s successors may outline more expansionary fiscal policy than has been the case under Ishiba. Specifically, the 30yr yield climbed to a 3.299% peak, just eclipsing the record high set last week.


• JGBs themselves saw downside of just under 30 ticks following Ishiba’s announcement, with the 10yr yield moving a little higher as a result, but capped by the view that fresh political uncertainty may slow the BoJ’s normalisation process.

OATs +6 ticks, 121.55

• Near enough flat into the confidence motion. Full Newsquawk preview available.


• The base case remains that PM Bayrou will lose the motion and have to submit his resignation to President Macron, an outcome that is priced by the market now and as such, should not spur any significant widening of spreads; OAT-Bund remains around the 80bps mark.


• The process begins at 14:00BST but the actual vote and subsequent results are not expected until the evening. Politico guides that 18:00BST is the earliest the outcome could be known.


• Thereafter, the ball is in Macron’s court. He has several options: he could appoint a new PM (possibly Finance Minister Lombard) to court support from the main government and the Left, he could announce fresh legislative elections or he could resign.


• A new PM appointment could see a modest tightening/widening of spreads, depending on who they are and the likelihood of success. Fresh legislative elections would likely spur a more significant widening, with the 85-100bps area touted, given the risk of further division or a RN victory and PM under President Macron. Finally, Macron’s resignation is the main tail risk and would see the most pronounced widening; an outcome that is seen as very unlikely.


• Macron may not make a decision straight away, particularly given the mass strikes scheduled for September 10th. Irrespective of his next steps, Fitch will be reviewing France on Friday and a potential downgrade (AA-, negative) is the main near-term risk for OATs.


• Just before that, the ECB meets and while President Lagarde has made clear they are keeping an eye on the situation, we are likely some way from levels which would warrant the use of TPI.

USTs: +1 tick, 113-13

• A contained start to the week, holding onto the bulk of the NFP induced upside we saw on Friday. On Friday, USTs hit a 113-21+ peak. Today, the benchmark holds at the upper end of 113-07+ to 113-14 parameters.


• For the Fed, a 25bps move remains fully discounted by markets this month (reminder, we are now in the blackout period) with around 150bps implied by end-2026 i.e. six 25bps cuts.


• The main update on the Fed front post-NFP has been Trump saying that Waller, Warsh and Hassett are the three finalists for the Chair role.


• As a reminder, the run up to the September FOMC is dominated by inflation prints. On those, Fed’s Goolsbee (2025) said he remains undecided on the September decision and needs to make sure the uptick in services inflation is a blip; remarks made after the jobs report.

Bunds: +3 ticks, 129.12

• In-fitting with the above. Firmer by a handful of ticks in 128.91 to 129.21 parameters, eclipsing Friday’s peak by a tick. Focus for the bloc is firmly on France, but as it stands, the risk of contagion is regarded as slim by desks.


• Aside from France, today’s September EZ Sentix figure came in below the forecast range at -9.2 (exp. -2.0, prev. -3.7). Sentix writes that both current and future expectations are noticeably deteriorating and particularly so in Germany where a turnaround can no longer be talked about.


• A slowdown that will be of note into this week’s ECB. A meeting that is expected to see policy rates held with a focus on macro projections, particularly the 2026 inflation view, given the divide between the doves and hawks. Nonetheless, the growth projections will also draw focus and Sentix will factor on the dovish side there.

Gilts: +5 ticks, 91.27

• Echoes of the above. Similarly to Bunds, Gilts have eclipsed Friday’s best at the top end of 91.09 to 91.34 parameters, besting Friday’s high by two ticks.


• Specifics for the UK light, aside from continued coverage around the makeup of the governing Labour party following the resignation of Deputy PM Rayner last week. However, the risk from a markets perspective is currently somewhat low as PM Starmer has confirmed that Chancellor Reeves will remain in her role. Reminder, UK Budget due November 26th.

08 Sep 2025 - 09:55- Fixed IncomeEU Research- Source: Newsquawk