BONDS: J.P.Morgan Client Survey Reveals Ongoing Reduction In EGB Spread Exposure

"IRAN'S TOP NEGOTIATOR QALIBAF SAYS HORMUZ STRAIT WILL REMAIN CLOSED UNTIL U.S. MEETS INTERIM DEAL CONDITIONS - STATE MEDIA" - RTRS

• Spread set when books opened: 2.50% Aug-54 Bund (ISIN: DE000BU2D004) + 0.4bp (mid)
• Size: EUR benchmark (MNI base case E3.5bln with E2.5-4.0bln range)
• Books in excess of E32bln (inc E3.35bln JLM interest)
• Bookrunners: Barclays, BNP Paribas, Citi, Deutsche Bank, J.P. Morgan and NatWest
• Timing: Books to close 9:45BST / 10:45CET (Corrected times as BST / CET were wrong way around)

From market source

The 10-year OAT/Bund spread has widened another 0.5bps to 85bps, looking to test the October 2025 closing high of 86bps. France’s precarious fiscal position makes OATs exposed to the recent ratchet higher in global core yields. This comes with markets already having started pricing political/fiscal risk premium through August ahead of the Autumn budget negotiations.

• On the budget, Le Figaro reported yesterday, citing a submission made to the government last month, that a 4.9% deficit in 2027 (which is apparently PM Lecornu’s target, per other local media reports) “would require incorporating a fiscal adjustment of nearly €28 billion into the draft budget bill”.
• As such, they note that “the Finance Ministry is currently drafting the budget without knowing the exact scale of the savings it will need to include. It is therefore juggling various "working hypotheses" and "proposals" while awaiting the final decisions from the Prime Minister’s office, expected in the coming weeks”.
• One potential avenue for fiscal consolidation is the de-indexing of certain social benefits. While Le Figaro note that “The Prime Minister’s office appears relatively reluctant to decree a total, across-the-board de-indexing", wealthy retirees could be targeted to raise revenue: “An expert on public finances estimates that freezing pensions above 2,000 euros would save around 3 billion euros next year.”
• Le Figaro conclude by noting that many avenues being floated are currently being aimed at private individuals. However, with the Government dependent on tacit support from the Socialists in conducting policy, “all signs therefore suggest that the next round of "trial balloons" will be directed at businesses and local authorities.”