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EGBS: Late Support From ECB 50bp Cut Call, BTP-Bund Near Three-Year Low

EGBS
BulletEurozoneFixed Income BulletsMarkets
  • EGB front yields were supported ahead of the close by JPMorgan bringing forward their call for a 50bp ECB cut to the Dec 12 meeting (from January prior) has helped support front yields ahead of the close. OIS prices 31bps vs 28bp prior.
  • 2Y yields closed firmly lower across EGBs, led by France at -6.7bp, whilst Italy led in 10Y space with -7.2bp (falling almost 3bps over the final hour).
  • There has been some significant further adjustments in 10Y spreads to Bunds, with BTP-Bund -3.2bps on the day at 118.6bp for its lowest close since Oct 18 and before that Nov 2021.
  • OAT-Bund saw a smaller adjustment on the day, 1.2bp tighter, but at 80.4bps it’s notable as it’s fully reversed Wednesday’s shunt higher to 89bp on fiscal concerns.
  • Still some risk events ahead in France, with the far-right now seeking further concessions alongside a threat to oust the government next week if their demands are not met (see here).
  • S&P meanwhile are scheduled to provide their latest sovereign credit rating update on France (current rating: AA-; Outlook Stable) after the close (any time from 21:00 London). We view a negative outlook move as the most likely outcome.
  • S&P downgraded France back in May (ahead of the EU & French elections) and a negative outlook move would match Fitch's rating/outlook settings, one notch below Moody's (Moody's also have France on outlook negative).
  • Ratings/fiscal momentum remains integral for markets, with OATs already trading cheap vs. other EGBS when looking solely at credit ratings. This suggests that a negative outlook move from S&P would have limited lasting impact on OAT pricing (all else equal).
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  • EGB front yields were supported ahead of the close by JPMorgan bringing forward their call for a 50bp ECB cut to the Dec 12 meeting (from January prior) has helped support front yields ahead of the close. OIS prices 31bps vs 28bp prior.
  • 2Y yields closed firmly lower across EGBs, led by France at -6.7bp, whilst Italy led in 10Y space with -7.2bp (falling almost 3bps over the final hour).
  • There has been some significant further adjustments in 10Y spreads to Bunds, with BTP-Bund -3.2bps on the day at 118.6bp for its lowest close since Oct 18 and before that Nov 2021.
  • OAT-Bund saw a smaller adjustment on the day, 1.2bp tighter, but at 80.4bps it’s notable as it’s fully reversed Wednesday’s shunt higher to 89bp on fiscal concerns.
  • Still some risk events ahead in France, with the far-right now seeking further concessions alongside a threat to oust the government next week if their demands are not met (see here).
  • S&P meanwhile are scheduled to provide their latest sovereign credit rating update on France (current rating: AA-; Outlook Stable) after the close (any time from 21:00 London). We view a negative outlook move as the most likely outcome.
  • S&P downgraded France back in May (ahead of the EU & French elections) and a negative outlook move would match Fitch's rating/outlook settings, one notch below Moody's (Moody's also have France on outlook negative).
  • Ratings/fiscal momentum remains integral for markets, with OATs already trading cheap vs. other EGBS when looking solely at credit ratings. This suggests that a negative outlook move from S&P would have limited lasting impact on OAT pricing (all else equal).