CHILE: Economic Activity Rises 3.1% Y/Y (Est: +3.8%)

• The initial support noted this Week at 130.00 is being tested in Bund, also seen more selling interest into the Bounce off the low triggered by the US ADP miss.
• Bobl is sold in 7k, Bund has seen around 24k lots in past 5 minutes.

Looking at the German 10yr Yield, reference 130.05:

• 2.671% = 129.79.
• 2.701% = 129.49.

• -5,000 TUU5 103-30.38, sell through 103-30.5 post time bid at 0821:09ET, DV01 $184,000.
• The 2Y contract trades 103-29.88 last +1.25

• With Gilts and GBP holding a large part of their daily weakness, markets are clearly still speculating on whether Reeves will be removed as Chancellor and whether that means the fiscal rules are dead and hence whether that means we will have a lot more spending (and hence issuance down the line).
• There is a chance that the market fallout has been overblown this, and that Starmer (whose office has said she has his full support) just chose his words poorly. There are some journalists now stating that there was a bust up with the speaker which upset Reeves.
• If Starmer was considering dismissing Reeves he has seen a taste of what the market reaction is likely to be if she is replaced by a Chancellor whose rules are not so stringent. So this could possibly cause some further thoughts on the issue.
• If there is a change in Chancellor the messaging needs to be clear that fiscal discipline will remain to avoid further downside to UK markets (likely a replacement will need to be named straight away).
• Markets were already on edge to some extent after the number of concessions needed to get the welfare bill second reading through the Commons and the other recent U-turns e.g. on Winter Fuel payments. It seems that the market is very concerned about the ability of the government to enact spending cuts.