COLOMBIA: December Trade, Retail Sales, IP Due, Finance Minister Guevara Speaks

• MBA composite mortgage applications jumped 33% (sa) last week, in the first full week for the year, after a four-week cumulative decline of 25% primarily seen in the last two weeks of December.
• Refis jumped 44% on the week vs -36% over that same four-week period, whilst new purchase applications jumped 27% after a cumulative -18%.
• It’s a strong start to the year but seasonal adjustment can be difficult around the festive period and it’s worth remembering that composite applications are still only 48% of 2019 averages (purchases 63%, refis 33%).
• It comes despite the 30Y conforming rate increasing another 10bps to 7.09% for its highest since May 2024, up from a recent low of 6.19% in late September.
• In a further sign of some relative easing in lending standards, the regular to jumbo spread pushed higher again last week, with the regular rate (7.09%) pushing above the jumbo rate (7.05%) for the first time since Nov 2023. 

• In the FI space, the trend in Bund futures is unchanged, it remains bearish and Tuesday’s fresh cycle low reinforces this theme. The contract has cleared key support at 132.00, the Nov 6 low. The clear break of this level strengthens a bearish theme. Sights are on the 130.00 handle next. Key short-term resistance is at 132.78, the 20-day EMA. Gains would be considered corrective.
• The trend condition in Gilt futures is unchanged, the direction remains down and last week’s fresh cycle lows reinforce current conditions. Recent weakness also highlights an acceleration of the trend. Sights are on 88.87 next, a 2.764 projection of the Dec 20 -27 - Jan 2 price swing. Initial resistance is at 90.31, the Jan 9 high. Resistance at the 20-day EMA, is at 91.61. The EMA is seen as an important hurdle for bulls.

PM Bayrou’s government looks set to survive a censure vote on Thursday, alleviating some short-term widening risks in OATs against EGB peers. However, medium-term fiscal and political risks remain prevalent in France, limiting the case for OAT outperformance at this stage. OATs continue to underperform PGBs and SPGBs year-to-date, with the 10-Year SPGB/OAT/PGB butterfly currently at 53bps (vs 52bps yesterday and a cycle closing low of ~56.5bps).

• Bayrou’s address attempted to placate parties across the political spectrum. As a partial concession to the left, Bayrou announced a renegotiation of the 2023 pension reform. Local media has reported that the first debates on this topic will begin on Friday.
• Bayrou also advocated for a move towards proportional representation at the next legislative elections – a notion supported by the right-wing Rassemblement National party.
• The Bayrou government will target a 2025 fiscal deficit of 5.4%. This was at the upper end (though still within) the 5.0-5.5% range touted by Finance Minister Lombard last week. Budget Minister Montchalin has said this will entail E53bln of savings. Montchalin noted this morning that a budget will aim to be presented by the end of January.
• A reminder that ex-PM Barnier’s budget proposal entailed a 5% deficit and E60bln of savings.
• The far-left LFI party proposed a no-confidence motion against the government following the speech (as expected), which will be debated tomorrow at 1500CET and voted on at around 1730CET. It is not expected to succeed in ousting Bayou.