BUNDS: Rise 10-year Bund Yields Capped At 2.70%; FV Suggests Modest Upside Risks
Nov-12 14:35
- After reaching a multi-month low of 2.523% on October 17, 10-year benchmark Bund yields have drifted back to 2.645%. The 2.70% figure contained upside on Monday.
- Despite today's pullback, our technical analyst notes that the short-term trend for yields is still higher for now. A push through 2.70% would expose the 76.4% retracement of the Sep 2 – Oct 17 pullback at 2.735% and the Oct 7 high at 2.744%.
- However, a move towards 2.80%, last seen in early September, may require increased conviction that the ECB's easing cycle has concluded, alongside durable signs that the ramp-up in German fiscal spending and associated issuance is underway heading into 2026.
- A linear model capturing fiscal/issuance fundamentals, ECB pricing, risk proxies and global FI pressures suggests fair value for the 10-year benchmark Bund is around 2.75%, pointing to modest upside risks from current levels.
- Current average Bloomberg consensus sees 10-year Bund yields aligning close to this fair value by year-end, albeit with a wide range of estimates between 2.50-3.00%. By the end of 2026, yields are expected to reach 3.00% (range 2.70-3.25%).
- The next important set of inputs for the ECB’s near-term rate path are the November flash PMIs (Nov 21) and flash inflation round (Nov 28 – Dec 2). The second reading of Q3 GDP on Friday is unlikely to be a major needle mover for markets.
- On the German fiscal front, monthly federal data is due to be updated next Thursday. YTD tracking of the federal budget deficit hasn’t pointed to a substantial fiscal easing yet.
- Meanwhile, the Bundestag will vote on the 2026 budget late November (though this isn’t expected to contain much new information).
- More focus will likely be on DFA’s 2026 issuance plan. It’s scheduled to be released in December (no set date yet). The 2025 plan was released on December 17 last year.
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SECURITY: Trump To Meet Zelenskyy At White House On Thursday - FT
Oct-13 14:35
US President Donald Trump will meet Ukrainian President Volodymyr Zelenskyy at the White House on Thursday, per reporting from the Financial Times. The meeting comes as the Trump administration's pivot toward Kyiv has yet to be backed with new penalties on Moscow, and Trump weighs supplying Ukraine with long-range missiles.
- News of the meeting comes after the pair spoke on Saturday, with Zelenskyy urging Trump to use the momentum from the Gaza peace deal to take a more assertive role in a Ukraine ceasefire.
- Zelenskyy wrote on X, “I congratulated [Trump] on his success and the Middle East deal... If a war can be stopped in one region, then surely other wars can be stopped as well—including the Russian war.”
- Trump told reporters yesterday he is considering arming Ukraine with long-range Tomahawk missiles that would allow strikes deeper into Russia, but may first talk to Russian President Vladimir Putin about it in a bid to end the war. Trump, “If the war is not settled, then we may very well do it. We may not, but we may do it.”
- Trump added more explicitly that he may use the threat of Tomahawks as leverage with Putin, “I might have to speak to Russia... Do they want to have Tomahawks going in their direction? I don’t think so. I think I might speak to Russia about that, in all fairness. I told that to President Zelenskyy, because Tomahawks are a new step of aggression. You understand that.”
SOFR OPTIONS: Dec'25 SOFR Put Tree
Oct-13 14:26
- +5,000 SFRZ5 96.12/96.25/96.31 put trees, 0.75 ref 96.36
OPTIONS: Expiries for Oct14 NY cut 1000ET (Source DTCC)
Oct-13 14:19
- EUR/USD: $1.1450(E537mln), $1.1500(E848mln), $1.1600(E663mln), $1.1650(E636mln)
- USD/JPY: Y151.50($691mln), Y152.00($751mln)
- AUD/USD: $0.6500(A$1.0bln), $0.6580-00(A$1.2bln)
- USD/CAD: C$1.4000-10($598mln)
