EGBS: OATs The Risk Proxy Of Choice, Limiting Recovery In SPGB/OAT/PGB Fly
Nov-05 11:58
The SPGB/OAT/PGB butterfly is off all-time lows, but the bounce has been limited and has already started to fade as weakness in equity markets weighs on OATs in RV terms.
- OATs have become more of a risk proxy given France’s ongoing fiscal deterioration and political risk premium.
- This contrasts with the positive fiscal dynamics and sovereign rating trajectories for Spain and Portugal, and the clear differentiation continues to hamper French paper on this structure.
- Ongoing French political risks and prolonged Budget uncertainty only deepen downside risks for OATs here, particularly with no clear outcome in sight at this stage.
- Note that the latest local media reports point to French PM Lecornu being set to offer concessions to the Socialist Party in order to advance the social security budget (covered by our political risk team recently), although it is uncertain whether the offer will actually be tabled/accepted.
Fig. 1: 10-Year Spain/France Portugal Butterfly
Source: MNI - Market News/Bloomberg Finance L.P.
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US: Trump Talks Up Economy
Oct-06 11:57
U.S. President Trump posts the following on Truth Social: "JUST OUT: Good news for the Holiday Season. EARLY PRICES ARE DOWN, WHILE TARIFFS ARE MAKING OUR COUNTRY AN ECONOMIC POWER AGAIN. Also, virtually NO INFLATION, AS STOCK MARKETS CONTINUALLY HIT RECORD HIGHS. THE BEST OF ALL WORLDS FOR THE U.S.A."
OUTLOOK: Price Signal Summary - Bear Theme In Gilts Intact
Oct-06 11:42
- In the FI space, Bund futures are holding on to the bulk of their latest gains. The recent climb appears corrective. Key support and the bear trigger lies at 127.61, the Sep 3 low. Clearance of this level would confirm a continuation of the medium-term bear cycle. For bulls, a clear reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is 128.84, 61.8% of the Sep 10 - 25 bear leg.
- Gilt futures continue to trade above their latest lows. Recent weakness strengthens a bearish theme and does suggest the end of the corrective phase between Sep 3 - 11. Note that on the continuation chart, moving average studies are in a bear-mode position, highlighting a dominant downtrend. A stronger resumption of weakness would open 89.94, the 76.4% retracement of the Sep 3 - 11 corrective phase. Initial resistance to watch is 91.28, the Sep 24 high.
GILTS: Basis Trades
Oct-06 11:15
Gilt Basis trades:
20 minutes ago:
- G Z5 1.46k at 90.48.
Now:
- G Z5 1.46k at 90.54.
