BONDS: EGBs-GILTS CASH CLOSE: Short-End Strength Sees Steeper Curves
Core European curves steepened Wednesday, ahead of Thursday's ECB decision.
- Core bonds benefited overnight by the disinflationary implications of China reportedly being set to allow currency depreciation.
- While yields would trade in both directions for most of the session, short ends of curves benefited from an in-line US CPI report that cemented prospects for a cut by the Federal Reserve next week.
- That helped push curves steeper: the German curve twist steepened on the day, with the UK's bull steepening.
- Periphery EGB spreads tightened, assisted by the slighly more dovish central bank outlook, though notably French OATs moved wider of Bunds, amid anticipation over a new Prime Minister appointee.
- MNI's preview of the ECB decision was published Tuesday (link): the ECB will cut by 25bp (fully priced by markets; 4 % implied of a 50bp cut), Even if language concerning the ‘restrictive’ policy stance is not removed from the policy statement this time around, it soon will be.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.2bps at 1.952%, 5-Yr is down 0.1bps at 1.955%, 10-Yr is up 0.5bps at 2.127%, and 30-Yr is up 2.3bps at 2.377%.
- UK: The 2-Yr yield is down 2.6bps at 4.251%, 5-Yr is down 2.6bps at 4.133%, 10-Yr is down 0.6bps at 4.317%, and 30-Yr is down 0.2bps at 4.876%.
- Italian BTP spread down 2.2bps at 106.4bps / French OAT up 2.1bps at 76.9bps
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GERMANY: Scholz Will Not Call A Confidence Vote On 13 Nov-Spox
A clarification on the title of the 1659GMT bullet. Gov't spox Steffen Hebestreit has confirmed that Chancellor Olaf Scholz will not call a confidence vote in the gov't on Wednesday 13 November. Heibstreit speaking to reporters said on Monday, "I can reassure you that the Chancellor will not ask for a vote of confidence on Wednesday."
- Under Germany's Basic Law, the power to call a confidence vote in the gov't resides with the Chancellor. The opposition can only seek a 'constructive confidence vote', which requires a majority in the Bundestag to back a new chancellor candidate.
GERMANY: Scholz Says No Confidence Vote 13 Nov-Spox
A gov't spox has confirmed that Chancellor Olaf Scholz has said he will not call a confidence vote in his minority gov't for Wednesday 13 November. An early confidence vote had been demanded by opposition conservative Christian Democratic Union (CDU) leader Friedrich Merz, ahead of the original 15 January 2025 date mooted by Scholz following the collapse of the 'traffic light' coalition.
- The parliamentary manager of the Christian Social Union (CSU, the CDU's Bavarian sister party) Alexander Hoffmann said earlier that the opposition would block any legislative efforts from the minority Social Democrat-Green administration until a confidence vote is taken. Greens co-leader Ricarda Lang said that she expects Scholz to offer a date 'this week' on when the confidence vote will take place.
- Earlier reports that a snap election could prove problematic due to a shortage of ballot papers have been rejected by representatives of the German paper industry. Nevertheless, an imminent confidence vote would risk a mid-to-late December election clashing with Germany's Christmas festivities.
Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average
Source: INSA, Forsa, FGW, Wahlkreisprognose, Infratest dimap, YouGov, Civey, Allensbach, Verian, MNI
BONDS: Europe Pi: BTPs Still Very Long, But Fading (1/2)
Outside of Germany:
- OAT: OAT is in flat positioning, continuing the pattern of fluctuating flat/long since July's elections. Trade last week was indicative of short cover.
- GILT: Gilt remains in long territory, though less extreme than the very long positioning in late Jul/early Aug. Last week saw trade indicative of short covering.
- BTP: BTP positioning is in very long territory, maintaining its reversal from short territory seen as recently as July. Some long reduction was seen last week, however.
