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[MARKET ANALYSIS] France drives EGBs higher with help from lower crude prices

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[MARKET ANALYSIS] France drives EGBs higher with help from lower crude prices

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  • A bullish start for fixed amid a modest pullback in energy prices, but particularly as EGBs mount a recovery with France driving into and after the RN alternative budget speech.
  • OATs firmer by over 110 ticks at best, hitting a 109.99 peak just after the cash equity open, a tick shy of the 30th October high, which was the session before the draft budget presentation. As such, the OAT-Bund 10yr yield spread narrowed to 133bps, vs over 150bps last week.
  • However, while largely intact, some of this strength waned on the alternate presentation from RN’s Le Pen. As, in brief, her proposals are a significant departure from the govt’s draft, and are perhaps being regarded as unrealistic by the market. Initial commentary which weighed on OATs by about 30 ticks vs the peak at the time.
  • Since, as Le Pen continues to speak, the tone remains one of a fiscally constructive approach and while ambitious, the market has turned-around and moved to highs, seemingly on her openness to wholesale fiscal reform and coordination with other European authorities, particularly the ECB. Taking OATs to a new high of 110.23 at the time of publication, and the 10yr yield spread to Germany down to c. 128bps. Note, this has also come alongside crude benchmarks hitting fresh lows, Brent USD 1.20/bbl lower on the day, but Dutch TTF remains firmer by over EUR 3/MWh.
  • Elsewhere, EGBs are generally on the front-foot. Bunds saw a bounce on a dismal set of German factory orders for August. However, this was almost entirely due to the impact of the "Other Vehicle Construction" sector after an exceptionally strong July print, and as such is likely not indicative of the situation across the bloc. Currently, Bunds are firmer by around 40 ticks and hold some 20 off the 121.37 high.
  • Gilts are between Bunds and OATs in terms of strength. Specifics for the space light, focus on the broader energy moves this morning as we continue to count down to the budget. Updates have included BoE’s Mann, who stuck to her hawkish bias, but was fairly explicit in saying that supply shocks mean inflation is becoming embedded. No real move in Gilts, which are firmer by 60 ticks.
  • USTs firmer, but with magnitudes slightly less pronounced into data and Fed speak. At the upper-end of a 104-04 to 104-14+ band.

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