[MARKET ANALYSIS] USTs caught between a haven-bid and energy upside, Gilts digest numerous factors, OAT-Bund 10yr eclipses 150bps

A contained start for fixed generally, USTs in a thin 105-05 to 105-12+ band, into a much busier docket than Monday, but one that is still generally awaiting events over the next few weeks; barring a significant geopolitical development, of course. Currently, this leaves USTs entirely within Monday’s confines, by just a tick at the low-end and 12+ at the upper-end. Yields lower across the curve, though only marginally and with no overt flattening/steepening bias currently seen. EGBs tracked USTs overnight, with a modest haven bid coming from the tepid APAC risk tone, but offset by energy upside, points that left the space near-enough flat in early trade. Thereafter, a hawkish UK job series pushed Bunds down by about five ticks, before this unwound and a 121.39 peak printed in the early morning. Specifics for the bloc thus far a little light, we mainly await updates on the fiscal front, as Politico suggests that German Chancellor Merz and French President Macron are more aligned on the need to get the next framework done by end-2026. Albeit, the immediate focus is on the weekend’s unrest, with French curfews approved more widely, though the litmus test will be the coming weekend’s planned action; and then the demonstrations unions are calling for in early-November. Reflecting the ongoing French political, and by extension, fiscal risk, the OAT-Bund 10yr yield spread has widened to a 151bps peak today, swiftly approaching the 152bps high from just after the draft budget was presented. Again, such widening does not bode well into Moody’s on Friday. Finally, Gilts opened with some modest downside, but didn’t stray too far from the 84.00 handle. Thereafter, some slight choppiness was seen in 83.85 to 84.13 confines amid a number of factors being digested at once; since, it has slipped into the red and marginally lags. Pressure comes from the energy upside and hawkish jobs data, the latter being another factor in favour of a BoE hike in November, or at the very least by end-2026. Elsewhere, the discussed risk tone would have had a modest offsetting influence. While reports around the budget could be taken either way. Specifically, The Times reported that Chancellor Healey has abandoned plans to increase Capital Gains Tax, due to the likely growth hit. A point that reduces his revenue-raising avenues, and this means a lower headroom is likely to result; however, it factors well for confidence levels in domestic business.