EM CREDIT SUPPLY: PIFKSA: new issue deal

Goldman Sachs’ new yield forecasts point to “around 20bp of further U.S. Tsy/Bund spread widening from current levels, given the sound foundation of economic divergence.”

• They suggest that “European fiscal support either at the country-level or area-wide level is likely to be modest, and unlikely to alter the 2025 cyclical outlook.”
• “Likewise, while the ECB is shifting in a more dovish direction, recent communication again underscored the lack of urgency to support the economy.”
• However, they caution that “the spread widening already embedded in curves suggests that a relatively protracted period of relative economic weakness in the Euro area is increasingly well-priced, and that risk-reward has become more balanced from a cross-market perspective with the UK or U.S”
• This leads them to conclude that “the clearest path to lower European yields in the near-term may be relief from global duration where pricing, in our view, has turned too bearish in the last month.”

Gilts follow Bunds lower.

• Futures trade as low as 92.58.
• Yields ~4.5bp higher, last week’s highs untested across the curve.
• A marginal downtick in final UK Q3 GDP data and the relative resilience in Tsys (which gilts have a higher beta to) fails to promote outperformance vs. German paper at this stage.
• Spread last 1.5bp wider, just below 224bp. Last week’s closing cycle high at 231.3bp.
• SONIA futures tick lower given impact from gilts and Europe, last flat to -4.0. They were little changed in early trade.
• BoE-dated OIS still showing ~61bp of cuts through ’25.
• Little of note on the UK calendar for the remainder of the week, which will leave focus on macro headline flow.
• A reminder that the Christmas holiday period will result in adjusted trading hours/closures, as well as depleted liquidity and volume.

EGBs see some selling early today, although diminished liquidity heading into Christmas may be helping the moves extend.

• Some attributing the move to ECB President Lagarde remaining alert to lingering services inflation pressure. We aren’t so sure, as she also stressed increased confidence surrounding the Bank nearing its inflation target.
• German yields 2-3bp higher, curve a little steeper. 10s initially test December highs (2.322%), still nearly 20bp below their November peak.
• The hold of the Dec high in 10-Year yields helps Bunds to stabilise.
• The fact that the Bund curve is steepening also plays down the impact of Lagarde’s comments.
• Peripheral and OAT spreads to Bunds 1-2bp wider.
• 10-Year OAT/Bunds last 81bp, sticking within the multi-week range that has been in play since the lead up to the ousting of PM Barnier.
• The Elysee has said that a new government will be named later today. Franch PM Bayrou previously stated that he wanted to form one by Christmas at the latest.
• The delay (as one wasn’t named over the weekend) is probably a factor in this morning’s OAT widening, although peripherals also struggle as European equities edge lower.
• 10-Year BTP/Bunds just under 2bp wider on the day at ~117.5bp, spread set for the highest close since December 3, but remains ~50bp tighter year-to-date.
• We will detail the Tesoro’s ’25 issuance plan (released late Friday) later this morning.