EUROPEAN FIXED UPDATE: OATs in focus as the French gov't awaits Le Pen's decision

OATs: +6 ticks, 126.76

• The main point of focus thus far and likely for the immediate session, until US ISMs anyway.


• Full newsquawk primer on the headline feed, but in brief PM Barnier has to outline his social security budget details to the National Assembly today as part of the budget, a budget which would almost certainly not pass due to it containing RN red lines. As such, Article 49.3 is expected to be used to push it through but this opens the gov’t up to a confidence motion as soon as Wednesday. A motion it is expected to lose, as both NFP on the left and RN on the right oppose the Barnier-led government.


• Into this, the French 10yr yield once again eclipsed its Greek counterpart, though only briefly and modestly. More broadly, the OAT-Bund 10yr yield spread has peaked at 86bps thus far today, elevated but shy of the 90bps high from last week; a peak which was the highest since 2012 when the spread was well in excess of 100bps.


• OATs themselves are firmer but have pulled back from a 127.04 session peak, in-fitting with action across benchmarks broadly in recent trade. Furthermore, while they were the initial outperformer Bunds have since taken over the mantle.

Bunds: +29 ticks, 135.08

• Firmer, but off session highs of 135.40. Been on the front foot throughout the morning, given the above French political concern on the narrative that it could potentially spill over into a broader fiscal/economic crisis with implications for the bloc as a whole.


• Furthermore, the morning’s final PMIs have for the most part been subject to very modest revisions lower (though the pan-EZ figure was unrevised). Within the EZ figure, HCOB wrote "According to our nowcast, the manufacturing sector’s output is going to decrease by 0.7% in the fourth quarter compared to the previous quarter. This slump is likely going to drag into next year.".


• Mentioned high approached mid-September resistance at 135.49 with little of note thereafter until 136.00 and then the 136.20 contract best from the beginning of November.


• More recently, as is the case elsewhere, Bunds have pulled back from best and while they retain a bid they are now closer to 135.00 than the aforementioned peak.

USTs: -5+ ticks, 111-01

• Focus for the session ahead, aside from France, is firmly on ISM Manufacturing PMI ahead of the services release later in the week and then most pertinently the NFP report.


• A payrolls report which will set the stage for the December FOMC, alongside timelier inflation metrics just beforehand. Furthermore, the week is packed with Fed speakers including Chair Powell on Wednesday while today’s speaker slate is headlined by Williams.


• More contained than EGBs, as USTs await their own metrics, at the lower-end of a 110-31+ to 111-06+ band with yields firmer across the curve and the curve itself slightly flatter as a whole.

Gilts: -6 ticks, 95.83

• Initially firmer, taking the lead from EGBs and with further modest upside coming after a downward revision to its Final Manufacturing PMI.


• However, Gilts have faded from the 96.25 peak which printed early doors with specifics light, aside from data, and the focus very much on the EZ/France. Action which sees them test new lows at 95.82, support from Friday at 95.78 and then 95.25 from earlier last week.


• Ahead, UK-specific docket is light and thus the benchmark will likely look to the French political situation and US data for direction.

02 Dec 2024 - 10:05- Fixed IncomeData- Source: Newsquawk