MIDEAST: Qatari PM-Ceasefire Challenges "Disappointing But Expected"

• EUR/USD: $1.1600-05(E2.4bln), $1.1695-00(E1.8bln), $1.1725(E528mln), $1.1775(E715mln), $1.1800(E1.8bln), $1.1825-30(E850mln), $1.1850(E878mln)
• USD/JPY: Y148.00($827mln), Y149.00-15($755mln)
• AUD/USD: $0.6595-00(A$1.3bln)
• NZD/USD: $0.5785(N$1.0bln)

Underlying futures remain higher/near highs as focus turns to US Gov shutdown (Tuesday at midnight if funding deal not reached), curves flatter. Projected rate cut pricing gaining slightly vs. late Friday levels (*): Oct'25 at -22.7bp (-22.4bp), Dec'25 at -41.2bp (-40.5bp), Jan'26 at -50.7bp (-49.9bp), Mar'26 at -60.6bp (-59.9bp).

• +10,000 SFRH6 96.50/96.68/96.87/97.06 call condors, 3.75
• +5,000 SFRZ5 96.56/96.68 call spds 0.75 ref 96.275
• +3,500 SFRZ5 97.50/98.00 call spds .25 ref 96.295
• Update, 26,000 SFRZ5 95.87 puts, cab (huge open interest at 603,823 coming into the session)

The bounce in 3m30Y EUR swaption vol since the middle of September stands out relative to short/medium tenors, underscoring the confluence of risks facing the long-end of global curves. For investors still demanding carry, the 5/10-year portion of EUR curves may still present a better risk-reward than longer-tenors, even considering the already strong year-to-date performance.

• In the Eurozone, Germany has officially passed its 2025 budget, with Bundestag focus now on passing the 2026 budget by the end of November. While uncertainty remains around the implementation of announced expansionary policies in Germany, a debt financed fiscal impulse remains the base case, which should underpin long-end yields. Meanwhile, the ongoing Dutch pension fund transition continues to add background steepening pressure to the long-end of the EUR swaps curve.
• Elsewhere, French PM Lecornu’s interview with Le Parisien on Friday has done little to assuage political/fiscal concerns in the region’s second largest economy. Domestically induced volatility in France continues to present a spillover risk for semi-core/peripheral peers such as Italy.
• Outside of the Eurozone, well known long-end risks include fiscal/political concerns in the UK and Japan, alongside continued worries around Fed independence in the US. Although global long-end rates have seen a relief rally through September, broader steepening trends remain intact.
• The decline in EUR rates vol since the Liberation Day spike in early April has been most pronounced at the short-end. This reflects increased certainty around the landing zone for the current ECB easing cycle., Most Governing Council members now consider rates to be in a “good place”, with another cut having to be clearly motivated by incoming data.

Figure 1: EUR 3m Swaptions Vol Across Tenors