BONDS
EGBS saw sizeable tightening in spreads to Bunds today, led by OATs as they continue to oscillate on French fiscal developments.
- The Oat-Bund spread tightened 4bps on the day to 81.6bps, with the bulk of the move coming early in the session when it tightened up to 5bps intraday after FM Armand hinted at potential concessions around electricity taxes in the 2025 budget.
- Barnier is having to risk some of his government's fiscal credibility to try and promote political stability within the republic by placating his major political rivals.
- There was a swift 1.5bp widening later in the session when the National Rally Bardella looked for further concessions but Barnier subsequently saying he will do everything to bring the 2025 deficit to around 5% GDP helped limit the move to maintain the day’s further shift away from Wednesday’s early high of 88.3bps.
- Related to this, the BTP-Bund spread tightened 3bps today to 121.8bps for its lowest close since Nov 19.
- Gilts meanwhile saw a session of two trends, selling off through most of the London morning before fully paring losses to close at 95.74. An earlier high of 95.78 has cleared resistance at 95.73 (1.764 proj of Nov 18-19-20 price swing), potentially exposing 96.03 (2.00 projection of the same move) and pose deeper threat to the bearish trend.
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