PLN: Zloty Ends NBP-Centred Week On Quiet Note

ERU5 98.00/98.06 call spread paper paid 0.25 on 6.5K.

The 10-year OAT/Bund spread has widened 1bp to 82bps this morning, underperforming EGB peers. Markets are digesting President Macron’s appointment of former defence minister Sebastien Lecornu to the PM post. Initial reactions from opposition parties suggest Lecornu will face many of the same challenges as his predecessors in passing a budget. This keeps French political and fiscal risks heightened, limiting meaningful narrowing risks for OATs.

• Olivier Faure, Socialist party leader, has noted that “There is a lack of understanding because the French were hoping for change, and deep down, Sébastien Lecornu at Matignon is Emmanuel Macron at Matignon; they are the same people” (source)  A reminder that former PM Bayrou managed to push his 2025 budget through the National Assembly only because he received tacit support from the Socialists. This tacit support ended following Bayrou’s 2026 budget proposals.
• Meanwhile, RN’s Le Pen has said that Lecornu will be judged “based on his record, his actions, his policy choices in giving France a budget, and this against our red lines" (source),
• The far left LFI party has said that it will issue a symbolic censure motion against Lecornu’s government, and has unsurprisingly said that it will “not participate in a grand coalition”
• A reminder that a Bloomberg benchmark 10-year OAT roll yesterday has skewed OAT/EGB spreads wider by ~7bps this week.

In light of today’s Eurex EU-Bond future launch, Commerzbank note that “the EU Jul-34 will become cheapest-to-deliver (CTD) in the December contract. Liquidity will be key, as only a highly liquid future will offer the necessary market depth for efficient hedging, arbitrage and positioning. However, note that the open interest for Eurex futures is reported with a one-day lag, while the turnover should be available in real time”.

• Nonetheless, they expect “the future to develop into a frequently used product based on conversations with clients”.
• In terms of valuation, Commerzbank suggest that “the December futures seem fairly priced with implied repo rates (IRRs) trading close to €STR. Given no switch risk in the EU future, its IRR should also trade close €STR”.