EMISSIONS: Funds Raise Bullish Bets in UKAs to Highest Since Late October

30-Year swap spreads and ASWs initially rally after an interview with an Executive Board member of the DFA notes that the Agency will take higher term premia into consideration when determining the ’26 issuance profile, seemingly signalling increased sensitivity to any jumps in long end yields.

• Tammo Diemer (the aforementioned DFA Executive Board member) also noted that the issuance structure is set to be consistent/similar in ’26, albeit with increased size (suggesting issuance above EUR500bln during ’26 is a “probable outcome”) which counters the rally, leaving Buxl spreads little changed on the day (cycle highs registered easer this month go unchallenged).
• Elsewhere, Diemer played down the likelihood of 50-Year issuance in the foreseeable future (in line with DFA comments made over the past couple of quarters), noting that discussions with investors had only generated “very isolated” structural demand for paper with that maturity. This is probably only provided marginal support at best to long end ASWs, given recent DFA communique on the matter.

• EUR/USD: $1.1520(E630mln), $1.1550(E565mln)
• USD/JPY: Y155.00($1.1bln)
• AUD/USD: $0.6535(A$1.7bln)

Germany's IFO Business Climate Index fell slightly, underperforming expectations in November at 88.1 (88.5 consensus, 88.4 prior). The current assessment reading improved marginally this time (85.6 vs 85.5 cons; 85.3 prior) but remained within recent ranges at a subdued level, while expectations were the driver behind the overall deterioration (90.6 vs 91.6 cons and prior).

• Across sectors, manufacturing underperformed after notable upside in October, while services moved back into expansionary territory. As a reminder, Friday's flash PMI release saw underperformance in both manufacturing and services.
• Across sectors, the press release notes that:
  • Manufacturing expectations in particular saw a "significant hit", with growing sceptism about the months ahead with lower order books, although current conditions were slightly better.
  • The service business climate "improved once again", with offsetting factors from a "somewhat more positive" current situation and a slight deterioration in expectations. "There was a noticeable setback in the transport and logistics sector, while sentiment in tourism brightened significantly."
  • The trade business climate deteriorated. "Companies assessed their current situation as somewhat worse, and expectations also declined. Retailers, in particular, were disappointed at the start of the Christmas season."
  • The construction index declined. "While the current situation shows a clear upward trend, expectations were once again more pessimistic. Weak demand remains a decisive bottleneck."