NORGES BANK: MNI Norges Bank Review - Aug '25: June Outlook Still Intact

As reported beforehand: "FRENCH PM: TWO DAYS OF PUBLIC HOLIDAYS WILL BE SCRAPPED AS PART OF 2026 BUDGET SAVINGS DRIVE" Reuters

Additional headlines of note:

• "FRENCH PM: WE WILL CALL ON TAXPAYERS WHO CAN MAKE A BIGGER EFFORT TO DO SO BY LIMITING CERTAIN TAX BREAKS" Reuters

10-year OAT/Bund spread remains steady at 69.5bps.

The spread between the 6-month Euribor fixing and the 6-month ESTR swap rate has widened ~7bps to 26bps over the past week, owing to a gradual  - but notable - rise in Euribor fixings. We haven’t seen a clear driver/explanation for the rise in the fixings, but it’s worth highlighting that the Euribor/ESTR spread still remains below the 29bps seen in early May and does not look out of place when plotted against Eurozone excess liquidity. 

• When Eurozone excess liquidity peaked at over E4.5trln in late 2022, the spread was hovering around ~10bps. Excess liquidity is currently around E2.7trln, still well above the ~E1.9trln seen pre-covid. In the 30 days to July 14, excess liquidity fell by E39bln, a somewhat slower pace than the E87bln reduction seen in the 30-days to July 3.
• Given Euribor incorporates a credit and liquidity component, the withdrawal of excess liquidity from the system has been expected to result in a wider Euribor/ESTR spread.
• Despite still tracking in line with its historical relationship with excess liquidity, it will still be worth monitoring the spread in the coming weeks, as ECB balance sheet runoff progresses and market liquidity potentially thins out during the summer period.

Latest headlines from Bayrou, a few more specific policies/targets being detailed now:

• "FRENCH PM: GROWTH IN SOCIAL AND HEALTH SPENDING TO BE HALVED" Reuters
• "*BAYROU: PLANS NOT TO INCREASE RETIREMENT PAYMENTS IN 2026" Bloomberg
• "FRENCH PM: WELFARE BENEFITS AND INCOME TAX BRACKETS WILL NOT BE ADJUSTED FOR INFLATION IN 2026" Reuters
• "*BAYROU: WON'T BE GENERAL PAY RISES IN MINISTRIES IN 2026" Bloomberg