FRANCE: Lecornu Acknowledges Budget Will Be Altered In National Assembly Speech
Speaking in the National Assembly, PM Sebastien Lecornu signals his gov'ts willingness to see changes made to the 2026 state budget. Opening the debate on the revenue side of the budget, Lecornu says, "The budget proposed by the government is imperfect, you will modify it, and the government will also modify ...". Outlining the draft's plans for France's fiscal trajectory, Lecornu says "the deficit will be reduced from 5.8% in 2024 to 5.4% in 2025. [It] must return to below 5% next year." Lecornu's predecessor Francois Bayrou had targeted a deficit of 4.6% in 2026, but Lecornu has been forced into a looser target of 'below 5%' by the centre-left Socialist Party (PS).
- Lecornu: "The government is ready [...], for an open and transparent debate [...], including by amending our own text during the session." Acknowledging the need for support from opposition parties, the PM says, "Once again, we must work differently [...] This draft budget is just a draft. It is our work that will give it its final meaning..."
- On military spending, Lecornu says the plans will "increase the armed forces budget alone by EUR6.7bln next year. That's 0.2 percentage points of GDP...".
- As noted earlier (see 'FRANCE: Socialists Threaten Gov't Ouster If Budget Concessions Not Forthcoming', 10:49BST), the PS has threatened to bring down the gov't if changes are not made to the budget as soon as 27 Oct.
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GILTS: Gap Support In Futures Holds, BoE Governor Points To Further Cuts Again
Gilts find supports after bears manage to close the opening gap higher
- A bid in crude oil (albeit with that move linked to geopolitical risk), coupled with headlines promoting EGB spread widening and a sizeable US$IG deal, have provided the major headwinds for bonds over the past couple of hours.
- Recent comments from BoE Governor, as he continued to lean into the idea of further rate cuts, may have provided some modest background support.
- Futures last 91.03 vs. session lows of 90.96.
- Bulls now look to the September 11 high (91.82), while initial support of note is seen at the Sep 2/22 lows (90.65/60).
- Yields little changed to 1bp higher, curve marginally steeper.
- SONIA futures flat to +1.5, off highs given the move in bonds.
- BoE-dated OIS still pricing ~6bp of cuts through year-end and the next cut is fully discounted come the end of the April meeting.
UN: Presidents Of Ukraine, Iran & Argentina Among 2nd Day Speakers
The second day of the UN General Assembly general debate is underway (livestream here), with King Felipe VI of Spain delivering the opening address. Speakers on the second day include (with rough timings), Ukrainian President Volodymyr Zelenskyy (09:30ET/14:30BST), Iranian President Masoud Pezeshkian (10:00ET/15:00BST), Argentinan President Javier Milei (12:00ET/17:00BST), Finnish President Alexander Stubb (13:15ET/18:15BST), and Slovak President Peter Pellegrini (17:00ET/22:00BST).
- Zelenskyy's speech comes in the aftermath of US President Donald Trump's high-profile Truth Social post seemingly backing Ukraine's efforts to repel Russia's invasion to a greater extent than previously (albeit with implications Ukraine and Europe may have to go it alone, see 'UKRAINE: Trump Post Strikes Positive Tone, But Could Put NATO & Kyiv On Notice', 10:14BST).
- Pezeshkian will speak following a meeting of the E3 (France, Germany, UK), EU, and Iranian Foreign Minister Abbas Araghchi on 23 Sep in a last-minute effort to avoid snapback sanctions coming in on 27 Sep.
- Financial markets will be watching Milei's address with the US talking up its commitments to supporting the Argentine economy, which faces significant headwinds amid concerns that the opposition left-wing Peronists will retain control of Congress in the October legislative elections, stymying the Milei administration's reform efforts.
US TSYS: Early SOFR/Treasury Option Roundup: Mixed Midweek Trade
Mixed SOFR/Treasury options on generally light volumes (including overnight) ahead a quiet data & Fed speaker session, focus is on Thursday's heavy data drop: Personal Consumption, GDP, Durables/Cap Goods, and weekly claims. Underlying futures extending modest session lows after trading higher overnight, curves steeper (2s10s +3.344 at 55.142), projected rate cut pricing drifts near late Tuesday levels (*): Oct'25 at -23.2bp (-22.7bp), Dec'25 at -44.0bp (-43.3bp), Jan'26 at -55bp (-54.5bp), Mar'26 at -66.5bp (-66.5bp).
- SOFR Options:
- +3,000 SFRZ5 96.37/96.50/96.62 call flys, 2.75
- -10,000 SFRZ5 96.68/96.75 call spds, cab
- +5,000 0QX5 95.87 puts, cab ref 96.965
- +4,000 SFRF6 96.62/96.75 call spds 1.75 over 96.12/96.25 put spds
- +5,000 SFRH6 97.25 calls, 3 ref 96.535
- 2,250 SFRH6 96.12/96.18 put spds vs 96.62/96.75 call spds
- 8,750 0QZ5 96.68/96.87 2x1 put spds ref 96.975
- 6,000 0QX5 96.87/97.12 strangles ref 96.98
- 3,000 SFRZ5 96.62 puts ref 96.975
- Treasury Options:
- 1,250 TYV5 112.25/112.5/112.75 put trees, 5 ref 112-24
- over 15,000 TYZ5 114 calls, 31 last (another 116k traded Tue, OI +64.9k to 229.3k)
- 2,500 TYV5 112.5 puts, 3 total volume over 6.6k)
- 2,000 TYV5 113/TYX5 111.5 put spds ref 112-28
- over 7,200 wk1 TY 112.25 puts, ref 112-28 (exp 10/3)
- 3,000 TYZ5 113.5/114 call spds ref 112-29
- 2,000 TYX5 114/TYZ5 114.5 call spds ref 112-30
