JAPAN: Finance Minister Reiterates Close Contact with Treasury Sec Bessent on FX

Lower crude oil has helped crimp the likes of EUR 3m10y vol. during today’s session, which, when coupled with an uptick in core global equity indices, has promoted some spread tightening for EGBs vs. Bunds.

• Note that both traded EUR vol. and EGB spreads vs. Bunds remain comfortably above levels that prevailed at the end of February.
• There was a positioning element to the widening in EGBs spreads with the escalation in the Middle East coming at a time when the ECB’s “in a good place” mantra had promoted heavy positioning in carry plays.
• Relative fiscal stories (in general more favourable for the periphery vs. much of the core and semi-core) had also provided cross-market tailwinds for peripheral paper until the escalation in the Middle East.
• Higher beta GGBs & BTPs outperform against today’s backdrop, as you would expect, narrowing by ~3bp vs. German paper at the 10-Year point.

DUK6 106.60/106.90 call spread paper paid 5.5 on 10K.

Following the first round of municipal elections on 15 March, a period of frenetic deal-making and coalition-building is underway as different alliances and parties attempt to build support ahead of the second round on 22 March. Most major cities, including Paris, Marseille, Lyon, Nice and Toulouse, will have a second round with three or more candidates, with a simple plurality required to win. Historically, parties of the left, centre-left, centre, and centre-right have formed the 'republican front' by withdrawing lower-ranked candidates to deny the far-right opportunities for victory. However, this system has shown signs of strain, with moderate parties showing reluctance or outright refusal to stand down for or work alongside the far-left La France Insoumise (LFI, 'France Unbowed') of Jean-Luc Mélenchon. 

• In the capital, Paris, centre-left Socialist Party (PS) candidate Emmanuel Grégoire has ruled out any alliance with the LFI's Sophia Chikirou. Grégoire came in first place with 37.98% of the vote, with Chikirou in third with 11.7%. Chikirou said that without an alliance, she would remain in the race. This could provide a narrow path to victory for second-placed conservative candidate Rachida Dati, who won 25.5% of the vote. An initial meeting between Dati and centrist Horizons candidate Pierre-Yves Bournazel (fourth place, 11.3%) did not result in an agreement on the latter standing down.
• In Toulouse, third-placed centre-left candidate François Briançon (24.99%) will form an alliance with second-placed LFI candidate François Piquemal (27.6%) in order to challenge first-placed right-winger Jean-Luc Moudenc. Briançon's decision has already seen one of his running mates, a regional councillor, resign in opposition.