BONDS
Today’s EGB focus came later in the session with a sharp widening in the 10-year OAT/Bund spread, rising 5bps to 86bps for its highest since 2012 according to Bloomberg.
- Much of the OAT underperformance started from ~15:30GMT, along with a notable pick up in OAT future volumes vs below average Bund future volumes.
- Earlier today, the EC approved France’s 2025 draft budgetary plan, as had been reported by Bloomberg last week. The EC did however note that “the risks to achieving the fiscal objectives for 2025 set out in the Draft Budgetary Plan are tilted to the downside, and mainly relate to the favourable macroeconomic assumptions underpinning the budgetary targets set in the Draft Budgetary Plan”.
- Further, some desks noted the potential impact of this story from Le Parisien "The government will fall": Macron expects Barnier to fall. On the sidelines of the decoration ceremony for Élisabeth Borne this Monday at the Élysée, the president made a few confidences. If in front of the camera, he has always refused to comment on the government's choices, in private, he predicts the censorship of the Prime Minister by Marine Le Pen."
- PM Barnier has since appeared on local TV, reiterating on TF1 at 8pm CET the aim to cut the budget deficit to about 5% GDP whilst seeing a financial market ‘storm’ if the budget isn’t passed per Bloomberg headlines from the appearance.
- The 10-year BTP/Bund spread also widened ~3.5bps in the afternoon to leave it 1.5bps wider on the day at 127.6bps for its highest since Nov 13.
- Gilts weren’t immune from the widening, with the 10-year spread to Bund widening 3.3bps to 216.4bps.
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