BONDS: Bunds Outperform On French Risk, Gilt Futures Respect Resistance

Bunds outperform peers, driven-by cross-market demand stemming from increased French political and fiscal risks.

• The French far-right is posed to deliver a no confidence motion against the government.
• Marginally softer-than-flash final German m’fing PMI also noted.
• Bund futures +42 at 135.20 vs. highs of 135.40.
• Next resistance of note not seen until the October 2 high (135.92), with the recent bullish cycle extending.
• German yields ~3.5bp lower across the curve. 10s last 2.055%, ~2bp off lows after hitting the lowest level seen since early October.
• While the initial risk-off move surrounding France has eased (Stoxx 50 now trades positive on the day, after fading an early sell off, 10-Year OAT yields little changed), OATs still widen vs. all EGB peers.
• OATs 3.5bp wider to Bunds on the day, last 84bp, back from opening wides of ~86bp, with last week’s intraday cycle high of ~89bp intact.
• ECB Governing Council member Kazaks recently pointed to discussions surrounding a bigger rate cut in December, which has been taken dovishly by markets given his usual hawkish leaning and current market pricing.
• ECB-dated OIS now shows 30bp of cuts for December, 63bp of easing through January and 161bp of cuts through December ’25.
• Gilt futures +4 at 95.93, after bulls failed to push the contract above Friday’s high (95.25).
• Yields 0.5-2.5bp lower, curve flattens.
• 10s near 220bp vs. Bunds, eying the ’22 mini-budget closing high, 227.6bp.
• News of a long-end tender consultation from the DMO has little impact.
• BoE-dated OIS little changed on the day, showing 81bp of cuts through ’25.
• U.S. ISM m’fing survey headlines the macro calendar today.