EUROPEAN FIXED UPDATE: OAT-Bund 10yr spread a little wider, JGBs hit by BoJ sources

OATs: -4 ticks, 121.85

• Kicked off the day near enough unchanged to yesterday’s close. With a small bout of pressure seen into the close as the French confidence vote hit just minutes before.


• However, as expected, the price reaction for OATs themselves has been fairly muted, due to the fall of Bayrou being very much priced in. One nuance on the reaction, but only really evident in the spread, was the slightly worse than expected vote split for him, as not all of the central alliance voted ‘for’ Bayrou.


• A nuance that perhaps explained the modest jump up in the OAT-Bund 10yr spread to 83.38bps this morning, eclipsing the 82.19bps peak that printed when Bayrou announced the vote. If the move continues, we look to the YTD peak at 88bps and then the 2024 peak of 90bps.


• Given this, as the morning progresses a little bit of further pressure has emerged in OATs themselves. To a 121.76 trough vs Monday’s 121.89 close. Action that has pushed the French 10yr to near enough match its Italian counterpart, action that is unsurprisingly drawing lots of newswire attention.


• We now await updates from President Macron on who he favours as the next PM. In terms of timings, officials on Monday suggested that the announcement will be made in the next few days. Note, some suggest he may wait until after Wednesday’s strike action, to allow the outgoing government to take the blame for that.

JGBs: -36 ticks, 136.81

• On a gradual descent across the APAC session and into the European morning, initially in-fitting with the modest pullback seen in peers but then accelerating on fresh BoJ sources.


• Firstly, Reuters reported that political uncertainty will not derail the BoJ’s normalisation plan, but could impact the timing. However, this was followed by a Bloomberg source that the BoJ still sees some chance of hiking this year (markets imply 15bps of tightening by end-2025). Even more hawkishly, the source stated some officials are of the view that an October hike could be appropriate (+8bps implied by markets).


• The hawkish elements sent JGBs to a 136.73 trough, lower by near enough 50 ticks at worst.


• Elsewhere, the long-end in focus on a Reuters source report that the BoJ is seen as likely to slightly reduce the purchase of super-long JGBs in Q4-2025.

USTs: -8 ticks, 113-14+

• A slightly softer start to the session, but only modestly so. Specifics light as we look to the BLS NFP benchmark revision report an Apple event and then 3yr supply


• From the BLS, BofA expects a downward revision of 500k to 1mln, implying that payrolls as of March 2025 may have been overstated by 40k–85k per month on average over the April 2024–March 2025 period. For context, the March 2024 nonfarm employment level was ultimately revised down by –598k in the final benchmark, compared with a preliminary estimate of -818k.


• Into the above and mentioned supply USTs find themselves a little heavy, towards the lower end of a 113-11 to 113-19 band. While in the red, the benchmark holds clear of Monday’s 113-07+ trough and still holding onto the vast majority of Friday’s NFP-induced gains, where a 112-28 to 113-21+ range printed.

Bunds: -25 ticks, 129.06

• Softer, with the pressure of a comparable scale to that outlined in USTs above. Pressure comes as the benchmark looks ahead to supply, with two green lines today and then a conventional tap on Wednesday.


• Supply aside, focus firmly on France (see OATs). While Bunds are underperforming this morning, the action is almost certainly supply driven and possibly in sympathy with JGBs on the recent Bloomberg source report. Rather than any contagion from the French political situation, with desks still generally of the view that risks of contagion are light.


• At a 128.97 low, above Monday’s 128.91 base and towards the upper-end of Friday’s 128.51 to 129.20 band; i.e. similar price action to USTs, as outlined above.

Gilts: -7 ticks, 91.48

• An echo of the above. Down to 91.31 at worst but well clear of Monday’s 91.09 base and, like with Bunds and USTs, towards the upper end of a 90.65 to 91.31 range.


• Specifics for the UK a little light, supply was well received and lifted Gilts off worst levels and to a marginal new high at 91.48; though, the benchmark still languishes in the red by just under 10 ticks.


• That aside, we await a speech from Chancellor Reeves in the later part of the morning. The Chancellor is, unsurprisingly, expected to push back on language from opposition leader Badenoch about an IMF bailout.


• More broadly, the commentary is likely to expand on an FT article which reported that the Chancellor is informing ministers to prioritise the fight against inflation.

09 Sep 2025 - 10:20- Fixed IncomeEU Research- Source: Newsquawk