STIR: Mildly Dovish Reaction On FOMC Decision, Powell Up

The Wall Street Journal reports that positive US consumer sentiment is largely being driven by a ‘wealth effect’ derived from a sustained bull run on the stock market: “Investors’ rosy feelings about having a lot more money—at least on paper—are powering spending on restaurant meals, business-class airline tickets, home improvement and more, keeping the broader economy humming.”

• The Journal notes, “Americans with large investment portfolios feel markedly better about the economy than those who don’t own stocks, according to the University of Michigan sentiment index. Sentiment among people who don’t own stocks is at the lowest level on a three-month moving average since the university began tracking it in 1998.”

Figure 1: Consumer Sentiment Index

Source: Wall Street Journal, University of Michigan

European curves flattened Monday.

• An apparent breakthrough in the US federal government shutdown over the weekend saw core instruments on the back foot early.
• But the rise in yields at the open would mark the highs for the day in Bunds and Gilts, with a fairly steady descent throughout the rest of the session.
• This was mainly following the trajectory of Treasuries paring losses as opposed to European macro/headline cues, though Bunds and Gilts would outperform their US counterparts on the day.
• UK Chancellor Reeves made the clearest indications yet that the government would break manifesto pledges not to raise income/NIC/VAT taxes.
• Periphery/semi-core EGBs outperformed alongside a risk-on rally in equities, with BTPs and OATs spreads tightening most.
• The German and UK curves both twist flattened, with Bunds slightly underperforming Gilts.
• The highlight of the week's calendar is UK labour market data out Tuesday - MNI's preview is here. The main focus is on private regular earnings, and we see risks to consensus expectations as tilted slightly to the upside.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.5bps at 2.005%, 5-Yr is up 1.2bps at 2.268%, 10-Yr is up 0.2bps at 2.668%, and 30-Yr is down 0.6bps at 3.26%.
• UK: The 2-Yr yield is up 0.9bps at 3.807%, 5-Yr is up 0.7bps at 3.935%, 10-Yr is down 0.5bps at 4.461%, and 30-Yr is down 1.1bps at 5.239%.
• Italian BTP spread down 2.3bps at 74.4bps / French OAT down 2.2bps at 77.5bps 

RRP usage rises to $7.152B with 11 counterparties this afternoon from $4.903B Friday. Compares to $2.435B on October 24 (lowest level since mid-March 2021) and the year's highest usage of $460.731B on June 30.