GILTS: Opening Calls

The 10-year OAT/Bund spread has pierced the December 2024 closing high of 87.8bps following Lecornu’s resignation. The spread is now 7bps wider on the session.

• While the timing of Lecornu’s resignation has come as a surprise,  his prospects were appearing bleak amid opposition from both sides of the political spectrum during his short (less than 1 month) tenure in office.
• President Macron is now faced with a familiar dilemma in needing to appoint another PM (or face calling a fresh legislative election). Our Political Risk team will provide more colour in due course.
• Clearly, the EC’s deadline for 2026 budget drafts (October 13th) is extremely unlikely to be met by France, further delaying hopes of needed fiscal consolidation.  

• EUR extends losses on the back of that resignation: EUR/USD now through earlier lows as well as the Oct02 low at 1.1683. French equities also see weakness - with the CAC40 easily the underperformer in Europe.
• Lecornu's resignation opening up more criticism from other parties: National Rally's Bardella says the government have shown they have understood "nothing" regarding the country's problems.
• Next major support in EURUSD crosses at 1.1646, the late Sept low. Weakness through here snaps the weak uptrend posted off the August 1st low.

Multiple French Block trades,suggest sellers:

• OAT 5k trades at 121.01 (5 clips of 1k).

French OAT is through that noted Gap of 120.99 as French Lecornu resigns.

Next support will be seen at 120.63.