Markets

US and EMU yields initially maintained the post-Fed upward bias that still reigned during the first 2025 trading sessions last week. However especially US LT yields are closing in on key technical resistance levels. The US 10-y yield is testing the end December top (4.64%), with the 2024 top (4.73%) also nearby. The 30-y yield briefly exceeded the 2024 4.84% top. However, with less than 50 bps of additional Fed cuts discounted by the end of this year, investors already loyally embrace the guidance from the December Fed dots plot. Really significant ‘new news’ is probably needed to extend the repositioning into a next technical era. US yields currently add 0.6 bps (2-y) to 2.5 bps (30-y), awaiting this week’s key US eco data (services ISM, labour market data). This week’s first round of US Treasury auctions, totaling $119bn, starts with today’s $58bn 3-y sale (10-y and 30-y to follow tomorrow and on Wednesday) and will also help to assess investor appetite at ‘repriced’ entry levels. The dynamics on EMU yield markets was slightly different. The ECB is largely expected to move its policy rate to a neutral level (2-2.5% area). However, after an upward surprise of the Spanish CPI last week, higher than expected preliminary German inflation data (HICP 0.7% M/M and 2.9% Y/Y from 2.4% vs 2.6% expected; services inflation 4.1% from 4%) illustrated that there is no reason to already preposition for a sub-2% depo rate. In a slight (re)flatting move, EMU swap yields currently add between 4.5 bps (2-y) and 1.5 bps (30-y).

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On FX markets, the dollar showed wild intraday swings. Relative interest rate moves between the EMU and the US initially supported cautious EUR/USD gains. However, around noon European time, the Washington Post (WP) reported that the Trump administration was looking to only impose tariffs on sectors that are deemed critical to national or economic security. The headlines triggered a broad risk-on move with higher (European) equities and a USD correction. EUR/USD temporary jumped from the low 1.03 area to 1.04+ levels. DXY tumbled from the 108.70 area just before the WP headlines to ease below the 108 big figure. However, in the Trump era, news on the policy of the new administration is only viable until the next headlines from the President(-elect). That came only a few hours later as Trump said that his Tariffs Policy won’t be pared back. The dollar regained part of its losses but still trades negative on a daily basis (EUR/USD 1.0375, DXY 108.35). European equities are trading off the intraday highs, but mostly keep decent gains (Eurostoxx 50 +1.4%). US indices also remain well supported (S&P 500 + 1%, Nasdaq + 1.5%).

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The Kingdom of Belgium announced a new syndicated euro benchmark bond to be issued in the near future – most likely tomorrow. It’s the first of three new fixed-rate benchmarks with maturities of 5 year, 10 year and one in a unspecified long maturity (> 10 years). Tomorrow’s 10-yr OLO 103 will mature 22/06/2035 and will help fund a €44.65 bn gross borrowing requirement consisting largely of €22.62 bn of redemptions and €19.43 bn in net financing. The Belgian Debt Agency noted the latter assumes Belgian compliance with the new European fiscal framework. The Kingdom, however, has not yet submitted its Medium Term Fiscal and Structural Plan to the European Commission, making the estimate prone to revisions. OLOs make up the vast bulk of the provisional €44.65 bn funding needs with the BDA intending to issue €42 bn.

France’s new finance minister Eric Lombard lowered the end-of-2025 budget deficit reduction goal during a radio-interview this morning. The previous minority government imploded after its plans to cut the gap from 6.1% to 5% forced out a no-confidence motion from the opposition. Lombard said that the >1% reduction is too much, saying they also need to support the economy. He instead targets a deficit that would be between 5 and 5.5%, containing around €50bn of tax increases and spending cuts compared to the €60bn former PM Barnier proposed. The shallower fiscal consolidation path would not derail the longer term objective of bringing the deficit back to the 3% mark by 2029. OAT/swap spreads ease several basis points today in a move joined by most other European peers.