EUROPEAN FIXED UPDATE: OATs outperform as the odds of fresh legislative elections diminish, USTs await Fed speak

USTs: -2 ticks, 112-18

• A contained start to the day. Newsflow has been light aside from last night’s FOMC Minutes being digested and the ongoing geopolitical situation around Hamas - see the feed for analysis.


• The above aside, the US docket is once again devoid of data owing to the shutdown, which still continues with no end in sight. As such, the main focal point is the heavy speakers docket headline by Chair Powell; from Powell, we do expect a text release, though this will be pre-recorded welcoming remarks, no Q&A expected. Texts also due from Bowman (voter), Goolsbee (2025), Barr (voter).


• As it stands, USTs are in a very narrow 112-18 to 112-24+ band and entirely within Wednesday’s 112-17 to 112-27 confines.

OATs: +8 ticks, 121.69

• Awaiting the announcement from President Macron on who the next PM will be, an update on this is expected by the end of Friday but there is no specific time for this yet.


• Politico reports that Jean-Louis Borloo has come to their attention as a potential candidate for French PM, as he can “speak to the left,” “embody a depresidentialized government,” and be “not as openly a lieutenant of Emmanuel Macron”, Politico surmises.


• As a reminder, caretaker Lecornu reported back to Macron yesterday and said that there is a majority against dissolving parliament and holding fresh legislative elections. The main sticking point in talks appears to be Macron’s pension reform; as such, we await anything from Macron or Borloo (if he is to be the nominee) on what the concession(s) will be.


• Ahead of this, OATs are outperforming peers with gains of c. 20 ticks at most. Upside that appears to be a function of the diminished odds of legislative elections in the near term and signs of some cooperation between parties.


• Given this, the OAT-Bund 10yr yield spread is holding just beneath 83bps, vs the 88.2bps seen in recent sessions.

Bunds: -8 ticks, 128.82

• Drifting throughout the European morning. Down to a 128.79 low with downside of c. 12 ticks at most. While marginally underperforming its peers, the benchmark remains clear of Wednesday’s 128.49 base.


• Pressure potentially a function of the updates on Germany’s automobile situation. As the nation has agreed on EUR 3bln worth of EV incentives, an agreement that comes ahead of a meeting at 14:00BST on the subject. While we don’t yet know how the incentives will be financed, the prospect of additional issuance is potentially weighing on the space.


• Elsewhere, no move to an above expected trade balance headline for Germany. However, both the export and import figures were softer than expected.

Gilts: -11 ticks, 90.68

• Opened lower by 13 ticks before slipping one more to a 90.65 trough, a point that the benchmark has remained around since.


• UK-specific newsflow light. No move to a text release from BoE’s Mann that stuck to her known hawkish bias.


• Overall, the complex is under modest pressure but is broadly in-fitting with EGB peers as we await a fresh catalyst.

09 Oct 2025 - 10:00- Fixed IncomeEU Research- Source: Newsquawk