STIR: Jul'25 SOFR Call Spread Sale

-19,000 TYH5 108-08.5, sell through 108-09.5 post time bid at 0903:13ET, DV01 $1.2M. The 10Y contract trades 108-07.5 last (-23).

Natixis note that “OAT 2/2030 offers the best carry & roll potential (on the French curve) vs. Bunds, on par with the “best” BTPs.”

• Natixis suggest that “with the political situation in France being more stable, OATs will likely be much more resilient and OAT/Bund spreads less volatile.”
• Therefore, they recommend buying OAT 2/2030 vs Bund 2/2030 at 57bp, setting a target at 45bp and a stop at 65bp with a 3-month horizon. 

Herbert Kickl, leader of the far-right Freedom Party of Austria (FPÖ) has confirmed that talks on forming a governing coalition with the conservative Austrian People's Party (ÖVP) have failed. In a letter to President Alexander van der Bellen, Kickl formally handed back the mandate to form a gov't. The talks were the second round of negotiations following the September 2024 federal election after discussions in the autumn between the ÖVP, centre-left Social Democrats (SPÖ) and liberal NEOS also broke down. 

• The major sticking point centred on the distribution of ministerial portfolios, with the ÖVP demanding control of both the finance and interior ministries. Der Standard reports that a proposal from the ÖVP to split the Interior Ministry, providing the FPÖ with control over a Ministry of Asylum and Migration, was rejected.
• The ongoing coalition formation period following the federal election is already the longest in Austria's post-war history. Kickl has shut down the prospect of a coalition with the SPÖ.
• A statement from ÖVP leader Christian Stocker is expected shortly. The ÖVP could seek to re-enter talks with the SPÖ and NEOS. If Stocker does not seek the mandate then van der Bellen could be left with the options of appointing a technocratic gov't or dissolving the National Council at the request of the Federal Gov't and calling snap elections.
• Recent opinion polling shows the FPÖ garnering support of ~35%, compared to the 28.8% won in 2024. These gains have come at the expense of the ÖVP, now polling ~18-20%, from 26.3% in the election. The SPÖ has held steady at around 20-22%.