[MARKET ANALYSIS] Fixed gloomy, but OATs are anything but moody

A slightly mixed start to the week for fixed income. Initial strength was a function of the energy pullback; however, benchmarks remain at elevated levels given the punchy rhetoric, and Dutch TTF has climbed significantly this morning, bringing the EUR 100/MWh mark into view. USTs are firmer by around five ticks early doors, at a 106-10+ peak, shy of last week’s highs at 106-14+ and 106-16+ from Friday and Thursday respectively. This week is, of course, dominated by the Fed on Wednesday. Ahead of that, geopolitics will continue to influence, and by extension the recent growth/inflation discourse will feature, before PCE post-Fed. OATs opened higher by around 70 ticks, after Moody’s maintained the rating, an Aa3, Outlook Negative rating that is one notch higher than both S&P and Fitch’s assessment of France. The hold was broadly on the assumption that a deficit-reducing budget will at some point be adopted. Given the challenging political and deteriorating fiscal backdrop in France, this was perhaps a stay of execution rather than a change in the narrative; next, we have S&P on November 27th. Upside that has largely held for OATs, and by extension the OAT-Bund 10yr yield spread has narrowed by almost 8bps today, after narrowing a similar amount on Friday, taking it to a 158bps low, vs Friday’s 176bps recent peak. However, MTD, it remains wider by over 30bps. Bunds in-fitting with USTs directionally, saw a slightly larger pullback in early hours and is hit by around 30 ticks at the time of writing, a function of the mentioned gas strength and as we look to this week’s ECB, with Moody’s hold on France removing one of the arguments for a, relatively speaking, more-dovish confab. Currently, at a 121.87 low. Finally, Gilts opened with very modest gains, before succumbing to the regional pressure and slipping by around 10. However, Gilt action is comparably a touch more contained, as focus remains firmly on the budget, while weekend press updates on that and UK PM Burnham's approach to the EU were unsurprising, but still a net-supportive factor for the benchmark.