OIL: "SAUDI ARAMCO TELLS STAFF TO EVACUATE FROM DHAHRAN HEADQUATERS - RTRS

Of Note:

EURUSD 1.47bn at 1.1500.

USDJPY 1.2bn at 158.00.

EURUSD 1.4bn at 1.1500 (wed).

USDCNY 1.02bn at 6.7030 (wed).

EURUSD 1.47bn at 1.1500 (thu).

USDJPY 1.46bn at 157.50 (thu).

USDCAD 1.27bn at 1.4100 (thu).

EURUSD 1.12bn at 1.1500 (fri).

EURUSD 2.62bn at 1.1500 (mon).

AUDUSD 1.05bn at 0.7100 (mon).

• EURUSD: 1.1425 (350mln), 1.1440 (240mln), 1.1460 (310mln), 1.175 (300mln), 1.1490 (441mln), 1.1500 (1.47bn).
• GBPUSD: 1.3380 (324mln).
• USDJPY: 157.00 (897mln), 158.00 (1.2bn).
• AUDUSD: 0.7100 (457mln).

Bund futures jumped to a high of 121.36 on solid volumes following positive news flow surrounding the US-Iran war. However, RXZ6 is back at 121.10 at typing, -1 tick versus yesterday’s settlement levels.

• Al Jazeera noted that the IRGC said “if our national interest requires us to conduct negotiations alongside the war, then we must negotiate” (albeit alongside some harder line rhetoric) and Kyodo News reports “Iran has informed the Trump administration that it will open the blocked Strait of Hormuz "within seven days" if it accepts demands such as lifting the US military blockade of Iranian port”. However, Iranian Parliament speaker Ghalibaf has since stressed that “diplomacy does not mean surrender and that negotiations are another arena for war”.
• The curve has lightly bull flattened, with  Schatz yields now little changed at 3.209% and  30-year Bund yields down 1.5bps to 3.788%.
• Germany will hold its first auction of the week at 1030BST with E5bln of the 2.90% Oct-31 Bobl. Meanwhile, Italy is launching  a new 12-year BTP Green via syndication.
• The 10-year OAT/Bund spread has underperformed peers this morning, currently up 3.5bps to 104.5bps. PM Lecornu will make an announcement at 1630BST/1730CEST today on the ongoing fuel crisis.
• The remainder of today’s Eurozone calendar includes commentary from ECB President Lagarde and Simkus, with September flash consumer confidence also due. 

The sell-side notes that we have read point to ongoing hesitance to engage in long OAT exposure, despite several desks highlighting attractive/undervalued levels on their metrics. The French fiscal and political situations continue to provide the obvious fundamental headwinds, while increased beta to broader risk appetite and oil price swings is noted:

• Morgan Stanley: We believe a combination of deteriorating global sentiment and still negative headlines in France help explain the recent widening with an increasing beta compared to the first few months of the conflict. This is also reflected in France further cheapening against our fair value framework. Our recommendations in EGB/SSA space remain focused on underweighting countries with higher-deficit/GDP ratios (France, Belgium, Austria) against countries with low debt/ GDP ratios (Netherlands, Ireland until last week) and EU. We retain a broadly unchanged bias: OAT underperformance into the Presidential elections, tightening back after the vote and underperforming against into the 2028 budget discussion.
• TD Securities: OAT-Bund spreads have widened beyond 100bp as higher oil prices continue to pressure euro area spreads, while France faces an additional risk premium from budget uncertainty, Despite the sell-off, OAT valuations are becoming increasingly attractive, with limited near-term rating downgrade risk and limited exposure of non-European holders in OATs.
• UBS: We had been advising clients to wait for better levels to go long Bunds, France and France vs. Germany. Back in early July, we called for a summer lull ahead of the budget given contained fiscal risks in near-term, stable net supply to the market, and strength in broader risk sentiment. But spreads widened steadily and we think that 10-Year French spreads around 90-110bps are a fair price for real macro risk. The team has been short 10-Year OATs vs EU targeting 65bps. The market is waiting to get more clarity on how centrist parties could position into the elections and consolidate voters.