OAT: Commerzbank: Spread Risks From Upcoming Rating Reviews Seem Manageable
Commerzbank suggest that “overall, the market should be relieved by no increase in OAT issuance for the remainder of the year.”
- They go on to flag that “all eyes will be on Fitch's review of France (later today), which we think could result in a negative outlook vs. the current AA-/stable rating.”
- “When affirming the rating in April, the agency said it expected France to meet its upwardly revised budget deficit target of 5.1% this year. Barnier has now said it could exceed 6%, and the new government has pushed back its target of bringing it below 3% by two years to 2029.”
- “Further rating reviews will follow in coming weeks, where we expect only minor negative rating actions, such as outlook changes or a 1-notch downgrade from Scope, while downgrades to single-A only appear to be a remote tail risk at this point.”
- “OAT spread risks from the upcoming reviews therefore seem manageable, also considering that French spreads are already aligned with single-A or even BBB peers.”
- They conclude by noting that “everything considered, we have affirmed our constructive OAT-Bund view and suggest reducing OAT shorts vs. Iberia and EU.”
- OAT/Bunds ~1bp tighter early today.
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USDCAD TECHS: Approaching Resistance At The 50-Day EMA
- RES 4: 1.3693 High Aug 19
- RES 3: 1.3646 High Aug 15
- RES 2: 1.3634 50-day EMA
- RES 1: 1.3616 Intraday high
- PRICE: 1.3594 @ 08:11 BST Sep 11
- SUP 1: 1.3547/3441 Low Sep 9 / Aug 28 and the bear trigger
- SUP 2: 1.3420 Low Mar 08
- SUP 3: 1.3358 76.4% retracement of the Dec 27 - Aug 5 bull leg
- SUP 4: 1.3288 Low Jan 05
Recent strength in USDCAD appears to be corrective, however, the latest move signals scope for an extension near-term. Attention is on resistance at the 50-day EMA, at 1.3634. A breach of this average would signal scope for a stronger bullish cycle. A reversal lower would refocus attention on 1.3441, the Aug 28 low and the bear trigger. Clearance of this level would confirm a resumption of the downtrend that started Aug 5.
GILTS: /STIR: TD Like 2s10s Flatteners & Received 2y1y GBP Vs. EUR
Late on Tuesday TD Securities wrote “gilts have notably underperformed in the global rates rally. Labour's fiscal gap and the UK's services inflation gap seem to be key driving factors.”
- Looking forwards, they suggest that “Labour’s pre-election pro-growth agenda is being challenged by its self-imposed manifesto restrictions on taxes and debt rules. At this stage it seems the Budget is more likely to be a short-term fix.”
- They also wrote “with growth and productivity impulses in the UK tracking more closely with the euro area than the US, we believe it will be hard for markets to continue to price an elevated BoE terminal rate vs. peers.”
- As a result, they “still believe monetary policy will remain our key anchor. We favour being received 2y1y GBP vs. EUR and 2s10s gilt curve flatteners.”
US 10YR FUTURE TECHS: (Z4) Trades Through The Bull Trigger
- RES 4: 116-07 1.764 proj of the Aug 8 - 21 - Sep 3
- RES 3: 116-00 Round number resistance
- RES 2: 115-31 1.618 proj of the Aug 8 - 21 - Sep 3
- RES 1: 115-23 Intraday high
- PRICE: 115-21+ @ 07:55 BST Sep 11
- SUP 1: 114-27+/06+ Low Sep 10 / 20-day EMA
- SUP 2: 114-00+ Low Sep 4
- SUP 3: 113-12 Low Sep 3
- SUP 4: 113-03+ 50-day EMA
The trend needle in Treasuries continues to point north and this week’s gains reinforce this theme. Today’s climb has resulted in a print above key resistance and the bull trigger at 115-19, the Aug 5 high. The move higher confirms a resumption of the uptrend and paves the way for a climb towards the 116.00 handle. MA studies remain in a bull-mode position, highlighting a clear M/T uptrend. Firm support is seen at 114-06+, the 20-day EMA.
