EU CREDIT MACRO: EU Market Close
• 2y/10y bunds are closing -1bp/-4bp at 1.96%/2.74%. Bostic and Waller both made dovish comments on US rates. JOLTS data also pointed to a possible rate reduction. Govvies generally rallied today, reversing recent moves.
• €IG closes -0.3bp on average. ICADFP was 7-10 wider on the day.
• Supply - EUR Corps: DE (3yr SUN), HEIBOS (5.5yr SUN), IHGLN (5yr SUN), SGSNVX (5yr SUN, 10yr SUN). IHGLN and SGSNVX both came wide to our fair value.
• SX5E/SPX futures are +0.7%/+0.4% at 5336pts/6453pts. €IG movers included Alphabet (+9%), Alimentation Couche-Tard (+6%), Barry Callebaut (+6%), adidas (+4%), Infineon Technologies (-6%), Worldline SA/France (-4%), Revvity (-4%).
• Main/XO finish -1.6bp/-7bp at 55.3bp/267bp.
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US TSY FUTURES: BLOCK: Sep'25 2Y Buy
- +6,600 TUU5 103-30.5, buy through 103-30.38 post time offer at 1139:00ET, DV01 $244,000.
- The 2Y contract trades 103-31 last, +.25
US TSY OPTIONS: Large Sep'25 5Y Put Fly Buy
- +25,000 FVU5 107.5/108.25/109 put flys, 12 vs. 109-07.5/0.14%
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EUROPEAN FISCAL: MNI Analysis: 2026 German Budget
- Finance minister Klingbeil last week presented the 2026 budget briefly after it was agreed on internally by the government and gave an update on the federal financial plan through 2029.
- The key takeaway from the announcement is that the government will face a significant task of consolidating its budgets starting 2027 and has limited plans yet on how to do so. Also on proclaimed structural reforms (bureaucracy reduction, social security reform), details are scant.
- Defense expenditure plans are largely unchanged vs previous, with the NATO quota to increase to 2.6% in 2026 and 3.5% in 2029 (excluding military-related infrastructure investment), while infrastructure investment from its related special fund is to focus on transport and digitization – with planned volumes to pick up next year and then remaining roughly stable through to 2029.
- Against that context, also note the recent MNI policy exclusive suggesting caution around the announced infrastructure figures.
