EUROPEAN FIXED UPDATE: US yield curve steepens ahead of JOLTS, OATs await Wednesday's confidence vote

USTs: -4 ticks, 110-31+

• USTs are softer, weighed on by recent strong data which is lifting yields from the belly out. However, short-end debt is bid in the wake of Fed speak overnight with yields at the short end pressured.


• Overnight, Waller said he is leaning towards a December cut, though noted one could argue the case for skipping and will be watching the data closely. Williams expects more cuts over time while stressing the outlook for policy and the economy is “highly uncertain”. Meanwhile, Bostic said he is keeping his options open around Dec.


• Today, the focus is on a packed speakers docket with Daly, Kugler & Goolsbee due while from a data perspective JOLTS takes centre stage and prints alongside RCM/TIPP; for JOLTS, job openings are seen ticking up to 7.475mln from 7.443mln prior (for reference, in September, the job openings rate fell to 4.5% from 4.7%, while the quits rate fell to 1.9% from 2.0%).


• USTs at the low-end of a 110-30+ to 111-06 band with the curve steeper. Support for USTs comes in at 110-23, a double-bottom from Friday and Monday, below this 110-13 and 110-10+ come into view.

Bunds: -26 ticks, 135.07

• Softer, specifics somewhat light thus far and while ECB speak is in focus the likes of Cipollone haven’t added anything surprising.


• At the low-end of a 135.14-40 parameter, which is entirely within Monday’s 134.79-135.46 band.

OATs: +2 ticks, 126.62

• The main update in today’s session has been the timing of the no-confidence vote on Barnier, which is set for 15:00GMT on Wednesday. A vote which follows the motion being tabled by both LFI (a member of NFP) on the left and RN on the right


• If Barnier’s gov’t loses the confidence motion (as expected) then Macron will need to appoint a replacement or call for Presidential elections; Macron is not expected to call for such elections, which are not currently scheduled until 2027, given the strength of Le Pen. Indeed, left-wing officials such as Faure have said they do not want/wish for Macron to resign, but look for him to appoint a left-wing PM.


• As outlined in Monday’s newsquawk analysis piece, if Barnier loses the vote he may well remain as caretaker during which he could enact special legislation to rollover the 2024 budget for a period of time (wouldn’t solve the fiscal crisis) or could use a gov’t order to force the legislation through.


• However, in the latter scenario, as caretaker he wouldn’t be able to deliver the budget so Macron would have the unenviable task of finding a PM accepted by a majority and one who is willing to deliver the tabled budget. Even if this was attained, passing the budget by majority in its existing form is highly unlikely.


• As it stands, the OAT-Bund yield spread is narrowing down to 85bps having peaked just shy of 89bps on Monday with last week’s 12yr high at 90bps just above. Jefferies writes that they retain a structural short-position on OATs due to the above and supply concerns (next auction on Thursday); on supply, Jeffries focuses on Q1 as the point of concern when increased net supply enters the market “and Asian investors are not willing buyers”.


• We are yet to hear from rating agencies on recent developments, after S&P affirmed France at AA- last Friday, with the agencies likely waiting for the confidence motion to be dealt with before commenting. On this, ING writes “French 10y spreads over swaps are more in line with an “A-“ rating rather than its current “AA-“, three notches lower.”

Gilts: +4 ticks, 96.15

• BRC Retail Sales for November came in much softer than the prior, downside which was seemingly driven by Black Friday being in the December rather than November data collection period, as such the likes of Pantheon look for a strong bounce in December.


• Auction saw a strong cover though both the price and yield tails were elevated when compared to recent taps, sparking some very modest pressure.


• Despite this, Gilts stand as the marginal outperformer contrasting with pressure in Bunds and USTs; though, magnitudes are limited with ranges narrow.


• Aside from the above, specifics for the UK are once again light. As such, we look to upcoming US data and numerous Fed speakers for insight.

03 Dec 2024 - 10:20- Fixed IncomeData- Source: Newsquawk