[MARKET ANALYSIS] Fixed falters on fiscal concerns, with France driving the narrative; UK 30yr yield above 6%

Despite a relatively steady APAC-European handover for fixed income, marked pressure has been seen this morning on what appears to be a bit of a self-fulfilling narrative, as concerns over yield upside see major levels breached, in-turn spurring further upside. The main point has been the French draft budget and reporting around that. In short, PM Lecornu’s government is looking to save around EUR 43bln from their spending, with various tax-related adjustments also being reported with a total figure of over EUR 50bln still in play as things stand. Nonetheless, this leaves them on track to have a deficit-to-GDP ratio of 5%, well above the EU’s EDP 3% threshold. As such, sovereign updates will be keenly watched in the run up to the 2027 Presidential election. In the near-term, the Finance Committee will discuss the draft at around 13:00BST, followed by commentary from Economy Minister Lescure at 15:00. As most, the OAT-Bund 10yr yield spread hit a 132bps peak, and currently sits just off that into the above. Reflecting this, OATs lower by over a point at worst, but are around 50 ticks off the 108.02 base. Bunds also pressured, in-fitting with peers, awaiting updates from the European Commission on the regional aspects of the bloc’s budget, updates that could weigh on EGBs further. For Germany, Bild reports that Chancellor Merz has blocked vice-Chancellor/Finance Minister Klingbeil’s sugar tax proposal, which would have raised EUR 1.2bln vs the EUR 0.4bln currently planned. Bunds lower by 20 ticks at the time of writing, lower by as much as 60 early doors, but has since been able to find a bit of a floor. Despite a lack of fresh fundamental news, the UK 30yr yield has eclipsed the 6% mark. A breach that may well have helped drive some of the self-fulfilling action early on ahead of the broader pressure and French updates. USTs, in-line directionally with the above, but with somewhat smaller magnitudes into an afternoon packed with speakers and data. Currently, just above the 104-00 handle, after minting a 103-28+ contract low this morning.