EGBS: Bund Futures Off Session Lows, 10-year Yields Still Within 2.6-2.8% Range
Sep-26 09:32
Demand in Bund futures came just ahead of initial support at yesterday’s low (127.88), with the contract basing at 127.89. Bunds are now +11 ticks at 128.11.
- Looking at the cash space, that leaves the September high of 2.801% in 10s untouched, with the contract trading almost exclusively within the 20bp 2.60-2.80% range since late July.
- The German curve lean bull flatter, with 5s30s down another 1bp and narrowing the gap to trendline support (drawn from the June 20 low) at ~95.5bps.
- BTP/Bund spread widening into today's heavy Italian supply and a move off session highs in European equities also provided support to Bunds.
- Smooth passage Italian supply, including a solid bid/cover at the 10-Year BTP offering, has allowed BTP/Bunds to tick away from session highs, now little changed at ~83.5bps.
- Data hasn’t been market moving (as expected). ECB 3-year consumer expectations were steady at 2.5%, but below the 2.4% consensus. Spanish GDP saw broad-based revisions going back to 2023 – generally pointing to a better trajectory in 2024/25.
- Global focus turns to the US August PCE report at 1330BST.
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FOREX: EUR Softer as French, Dutch Political Risk Remains Key Driver
Aug-27 09:27
- Datapoints are few and far between Wednesday - and it's a similar case for both the central bank speaker schedule as well as Trump's official timetable, which may keep headline risk subdued throughout today. As a result, focus may remain on political machinations in Paris as the government look increasingly fragile. French bonds continue to trade sensitively and underperform broader European markets - highlighting the risks to the French economy (and thereby the EUR) from any decrease in fiscal credibility from the French government.
- While EURUSD weakness on Wednesday has primarily been driven by broader dollar dynamics, the French political situation will be adding weight. The latest polling from Ifop found a large majority of respondents in favour of the dissolution of the National Assembly and snap legislative elections. In total, 63% of respondents favoured dissolution. Data from Polymarket shows bettors assigning a 20% implied probability that fresh elections are called by 15 September, rising to 41% by year-end.
- Accordingly, the wider French-German 10y yield spread remains a solid proxy for European political risk, and is worth monitoring for intraday inflection points in the single currency.
- The USD Index is firmer within the recent range. Should prices close at current or higher levels today, it could mark the beginning of an upside correction, marking a break above the downtrendline drawn off the early August highs on the 15min candle chart.
- NZD is worse-off against all others in G10. NZD/USD is back below the 200-dma of 0.5832, but it's the 0.5800 that should provide firmer support on any further phases of weakness. Clearance here puts prices at the lowest since April, and another spell of soft equities could trigger a test. NVIDIA earnings are due after-market, and could have a sizeable impact on headline indices.
BONDS: Firmer & Flatter As Equities Soften
Aug-27 09:26
Bonds have rallied this morning, with European equities on the defensive and no meaningful concession in the lead up to 7-Year German supply.
- Bund futures have registered the highest level of the week. Bulls have pushed the contract through initial lower tier resistance points. switching focus to the nearby 50-day EMA (129.78). A break above there would heighten the chances of a bullish reversal.
- German yields are 1-3bp lower, curve bull flattens. 5s30s back from yesterday’s fresh cycle closing high, but still comfortably above 100bp.
- EGB spreads to Bunds little changed to ~1.5bp wider given the broader risk aversion.
- OATs widen the most, spreads testing yesterday’s intraday high, last ~78.5bp, while 10-Year BTP/OAT narrows to ~5bp.
- ECB-dated OIS subjected to modest dovish repricing alongside the rally in wider bonds, with ~20bp of easing showing through June ’26.
- Gilts off early session lows given the cues from wider core global FI.
- Futures registered fresh cycle lows before bouncing. Bulls need to retake 91.24 to start turning the tide in their favour.
- Yields ~1.5-3.0bp lower across the curve, light flattening bias on the day.
- Well defined yield resistance points intact across the curve.
- 3-Year gilt supply went fairly smoothly, although the cover ratio moderated vs. prev. auction.
- The minutes of the latest DMO consultation with market participants showed ongoing preference for a reduction in WAM.
- GBP STIR pricing still at the hawkish of the recent range, showing ~10bp of easing through year-end.
- Little in the way of tier 1 macro releases scheduled for today, leaving focus on headlines and cross-market flow.
ESM ISSUANCE: USD2bln WNG New 5-Year: Spread Set
Aug-27 09:20
- USD2bln WNG of the new 5-year Sep-30 ESM-Bond
- Spread set at SOFR MS+39 (SA 30/360) (guidance was SOFR+40 Area, IPT was MS+42 area, that was equiv. to CT5 + ~7.3bp)
- Books in excess of $10.2bn excl. JLM interest
- Issuer: European Stability Mechanism (TICKER: ESM)
- Issuer Ratings: Aaa (stable) (Moody's) / AAA (stable) (S&P) / AAA (stable) (Fitch)/ AAA (stable) (Scope)
- Format: Registered Notes, Reg S (NSS) / 144A
- Ranking: Senior, Unsecured, Unsubordinated
- Listing: Luxembourg
- Settlement: 4 September 2025 (T+6 (TARGET) / T+5 (NY))
- Maturity Date: 4 September 2030 (5Y)
- ISIN: Reg S: XS3171756128 / 144A: US29881WAG78
- Coupon: Fixed, Semi-annual, 30/360, Following, Unadjusted
- Bookrunners: CACIB(DM/B&D) / DB / JPM
- Timing: EMEA/ASIA books to close at 11.30CET/10.30UKT. Americas books to close 8.30EST/14.30CET/13.30UKT.
From market source and Bloomberg.
The transaction comes ahead of a USD3bln redemption for the ESM in September. That line also had a 5-year maturity initially.
