BONDS: EGBs-GILTS CASH CLOSE: Gilts And OATs Outperform On Local Developments
Oct-14 17:30
Gilts and OATs were standout performers in an eventful session Tuesday.
- Core FI saw an early bid amid renewed deterioration in Sino-U.S. trade relations.
- The tone was helped with data coming in on the soft side early too: the UK labour market report included disappointments on the wage growth, vacancies and LFS fronts (MNI's review of the data here), spurring a deepening of BOE cut pricing. Meanwhile, the German ZEW survey readings underperformed across both expectations and current conditions.
- In the session's key development, OAT spreads to Bund tightened sharply on prospects for early elections to be avoided, after French PM Lecornu pledged among other matters to suspend the 2023 pension reforms to 2028. OAT gains extended into the cash close with 10Y yields hitting 2 month lows as the Socialists said they will not vote for a no confidence motion in the government.
- On the day, Gilts outperformed Bunds with both the German and UK curves closing bull flatter.
- OATs outperformed in the periphery/semi-core space, with 10Y spreads to Bund falling below 80bp.
- After the cash close we await commentary from various French political leaders who are expected to weigh in on the Lecornu speech.
- Wednesday's calendar includes Eurozone industrial data, with multiple ECB and BOE speakers including Ramsden, Breeden, and Villeroy.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.9bps at 1.935%, 5-Yr is down 1.5bps at 2.202%, 10-Yr is down 2.6bps at 2.61%, and 30-Yr is down 3.2bps at 3.192%.
- UK: The 2-Yr yield is down 4.9bps at 3.901%, 5-Yr is down 6.3bps at 4.038%, 10-Yr is down 6.8bps at 4.59%, and 30-Yr is down 6.9bps at 5.394%.
- Italian BTP spread down 1.5bps at 78.3bps / French OAT down 4bps at 79.8bps
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
Sep-12 21:45
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
Sep-12 21:16
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Sep-12 21:07
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
