OAT: 10-year OAT/Bund Back At 84bps After Pessimistic Faure Headlines

• In the equity space, a bull cycle in S&P E-Minis remains intact and the latest pullback has once again proved to be a shallow correction. The contract traded to a fresh cycle high last week, breaching the Aug 28 high of 6523.00. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 6543.75 next, a 2.00 projection of the Apr 7 - 10 - 21 price swing. Initial support to watch is 6447.06, the 20-day EMA.
• A corrective bear cycle in EUROSTOXX 50 futures remains in play. Recent weakness resulted in a breach of 5368.74, the 50-day EMA. The clear break of this average strengthens a short-term bearish threat and signals scope for a deeper retracement towards 5166.00, the Aug 1 low and a key support. On the upside, initial resistance to watch is 5378.06, the 20-day EMA. A clear break of it would be a bullish development.

The 10-year Gilt/Bund spread is 1bp wider today at 199bps, amid a fairly subdued start to the weak. The spread reached a multi-month closing high of 203bps on August 27.

• Data hasn’t had a discernible impact on FI market pricing: German July industrial production was stronger-than-expected at 1.3% M/M (vs 1.0% cons; prior revised to -0.1% from -1.9% initial) while the September Euro Sentix survey was weak at -9.2 (vs -2.0 cons, -3.7 prior). In the UK, the KPMG-REC report on jobs continued to portray a softening labour market.
• The German curve has lightly twist flattened, but 5s30s is only 0.7bps flatter at 106.9bps.
• Meanwhile, Gilt yields are 0.5-1.5bps higher, with a bear flattening dynamic in play. UK 5s30s is hovering around trendline support drawn from the November 2024 low, currently at 144.9bps.
• Futures ranges have been tight, with Bunds -2 ticks at 129.07 and Gilts -4 ticks at 91.19.
• 10-year EGB spreads to Bunds are up to 1bp tighter, led by BTPs. The BTP/Bund spread is back at 83bps after testing 90bps last week.
• French PM Bayrou is expected to be ousted by a no-confidence vote this afternoon. Market prices may already incorporate an expectation for a new administration to make budget concessions, potentially limiting the scope for further OAT/Bund spread widening following the vote.