OAT: OATs Outperform On the Day, But Risks Remain
Aug-28 08:53
OAT/Bunds trades back below 80bp.
- Yesterday’s close in the spread (81.8bp) was the highest since January, with this week’s widening coming on the back of French PM Bayrou calling a confidence vote on his own government (scheduled for 8 September)
- Bayrou has cautioned that France faces a "Liz Truss-style catastrophe" if the proposed government spending cuts are rejected, while warning against snap elections and expressing his hope that those calling for the toppling of the government “spoke too soon”.
- Spill over from the uptick in European equities is probably more meaningful for markets intraday, with all of the major EGB spreads vs. Bunds tighter on the day.
- Zooming out, snap election risk is elevated, with the far-right RN polling stronger than pre-’24 election levels, increasing chances that tabled spending cuts are blocked in the wake of a potential vote.
- The 10-Year SPGB/OAT/PGB fly traded through prior cycle closing lows yesterday before rebounding a little this morning. The latest bout of French political uncertainty has bolstered investor preference for Iberian paper given the more favourable fiscal and sovereign credit rating backdrops when compared to France.
- BTP/OAT convergence plays also remain in vogue, with the 10-Year spread trading sub-5bp in recent sessions, while the 30-Year variant has dipped below 15bp in recent days.
Fig. 1: 10-Year SPGB/OAT/PGB Butterfly (bp)
Source: MNI - Market News/Bloomberg Finance L.P.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: FX OPTION EXPIRY
Jul-29 08:38
Of note:
EURUSD 1.65bn at 1.1650 (a bit far).
USDJPY 1.24bn at 149.00 (wed).
USDCAD 1.7bn at 1.3770/1.3775 (wed).
AUDUSD 1.01bn at 0.6550 (wed).
EURUSD 1.81bn at 1.1600 (thu).
AUDUSD 1.38bn at 0.6600 (thu).
- EURUSD: 1.1500 (629mln), 1.1550 (680mln), 1.1600 (862mln), 1.1650 (1.65bn).
- USDJPY: 148.00 (430mln), 148.50 (317mln), 148.75 (277mln), 149.00 (322mln).
- USDCAD: 1.3715 (365mln), 1.3770 (540mln).
- AUDUSD: 0.6600 (966mln).
SPAIN DATA: Domestic Demand Fuels Another Strong GDP Print
Jul-29 08:32
Spain continues to cement itself as the post-covid Eurozone growth engine, with Q2 flash GDP growing 0.7% Q/Q (vs 0.6% cons and prior). Sequential growth has been above 0.6% for the last eight quarters.
- Domestic demand was solid in Q1, contributing 0.9pp. External demand was a modest drag to the tune of 0.1pp.
- Household consumption rose 0.8% Q/Q, after slowing a little to 0.5% in Q1. This is consistent with the solid growth in retail sales and improvement in consumer confidence seen through Q2. Meanwhile, Spain’s record low unemployment rate will also be providing a tailwind to consumption.
- Gross fixed capital formation rose 1.6% Q/Q (vs 1.9% prior), while Government consumption was -0.1% Q/Q (vs -0.5% prior). Exports rose 1.1% Q/Q (vs 1.7% prior) while imports grew 1.7% Q/Q (vs 1.5% prior).
- On the production side, industry grew 0.8% Q/Q, while services saw more impressive 1.2% Q/Q growth. The services PMI was in expansionary territory through Q2.
- Hours worked rose 0.3% Q/Q, while real productivity per hour was 0.5% Q/Q. We wrote last week that Increased employment rates, and by extension hours worked, has been a key driver of Spain's economic outperformance post-covid. Importantly, this has also come alongside improving real productivity metrics.
MNI: UK JUN M4 MONEY SUPPLY +0.3% M/M, +3.3% Y/Y
Jul-29 08:30
- MNI: UK JUN M4 MONEY SUPPLY +0.3% M/M, +3.3% Y/Y
