BTP: Block Trade pushes the Italian/German spread wider

The tone in EGBs continues to be set by French PM Bayrou yesterday effectively calling a confidence vote in his own government with an extraordinary session convened on Sep 8. Bunds see outperformance in relative haven flow whilst Gilts play catch-up after yesterday’s bank holiday closures. 

• French paper underperforms across the curve, with yields 2.4bps (5s) lower to 1bp higher (30s).
• The French 10yr Yield (currently 3.504%, -0.3bps) has fully cleared the 3.50% level with a high of 3.531%, highest since March.
• OATA trades at 121.82 (-0.10) off earlier lows of 121.54. Next stop: 3.550% = 121.39 and 3.631% = 120.61 (highest Yield print since Nov 2011).
• The 10Y OAT-Bund spread is off earlier highs of 79.4bps (fresh highs since April) but still 1.7bp wider on the day at 76.9bp. It was under 71bp prior to yesterday’s headlines.
• Related, S&P Global report that 5Y CDS spreads have increased to a three-month high of 37bps.
• RXA trades at 129.28 (+0.29) within session ranges of 129.15 and 129.49, on strong cumulative volumes over 400k. It briefly cleared resistance at 129.46 (20-day EMA), with a stronger clearance opening 129.80 (50-day EMA). Support is seen at 128.64 (Aug 15 low).
• Gilts see underperformance on the day in catch-up from bank holiday closures.
• There was a big move on the open, some of the calls were 90.90/91.00, it was netting at 90.87, but it’s dropped more than 50 ticks at 90.39. The Dec is still not front month but expected to be today. Immediate support in G Z5 is at 90.31, but the big Yield levels are still at: 4.800% = 89.98 before 4.921% = 88.93.) 

• E3bln WNG (excl. E250mln issuer retention) of the new 7-year Sep-32 RAGB
• Spread set earlier at MS+30 (guidance was MS+33 area)
• Books closed in excess of EUR 19bn, including EUR 1.8bn JLM interest
• Format: Reg S, Bearer, 144A eligible, CAC
• Settlement: 02 September 2025 (T+5)
• Maturity: 20 September 2032 (7Y)
• Coupon: TBD, Fixed, Ann., ACT/ACT (Long 1st to 20 September 2026)
• ISIN: AT0000A3NY15
• Bookrunners: BofA / DB(DM/B&D) / Erste Group / HSBC / JPM / Raiffeisen Bank International
• Timing: Launched. Allocations to follow. DB=DM/B&D

From market source

• Volatility in currency markets Tuesday was stoked by President Trump declaring he was firing Federal Reserve governor Lisa Cook “effective immediately”, in an escalation of the US president’s attacks on the central bank. The immediate impact was dollar negative, with USDJPY bearing the brunt of the move, depreciating around 90 pips in the aftermath.
• This allowed USDJPY to trade down to 147.00, reversing much of Monday’s ascent. However, weakness was short-lived as the dollar began to reverse on potential safe haven demand, while Governor Cook stating that she will not resign and will continue to carry out her duties may have also exacerbated the dollar’s full intra-day reversal.
• FX futures volumes are healthy - likely a result of the catch-up after the UK bank holiday on Monday: GBP, JPY futures see volumes of 40%-80% above average, but EUR futures are the standout: heavy trade through Asia-Pac saw total activity over double what might be expected in at this stage of the trading day.
• Overall, the dollar index’s resilience to start the week has seen the majority of Powell's dovish JH inspired selloff reverse. Activity is also backed up by WSJ's overnight report that China have sent a "senior" trade negotiator to the US - a likely signal that a trade deal can be reached that could unlock a Trump-Xi Jinping summit in the near future.
• While the EURUSD’s fall this week is reflective of broader greenback themes, political uncertainty has also ratcheted up following French Prime Minister Francois Bayrou’s plan to call a confidence vote. The trend set-up in EURUSD remains bullish and short-term weakness is for now considered corrective. Support at the 50-day EMA remains intact, at 1.1597. A clear break of it would signal scope for a deeper retracement and potentially expose key support at 1.1392, the Aug 1 low.
• US durable goods, consumer confidence and Richmond manufacturing data are all due later in the session. ECB’s Villeroy, BOE’s Mann and BOC Governor Macklem are all due to speak.