10Y TNOTE-BUND SPREAD WILL NARROW… BUT WHEN?

Macroeconomic environment Eurozone: employment increased by 0.4% qoq in Q2 and by 1.5% yoy . Ge rmany: the current situation component of the ZEW index improved from 72.6 to 76 in September, while the expectation s component improved from -13.7 to -10.6. Ireland: house prices increased by 1.1% mom and by 10.4% yoy . UK: unemployment rate stable at 4% in July, employment increasing by 3 thousand. Earnings increased by 2.6% including bonuses and by 2.9% excluding bonuses. Mark Carney to stay on at the head of the BoE for a further 7 months. Equities Flattish session for European equity markets after rises for two consecutive sessions. Energy outperformed, whereas consumers underperformed. The VIX pulled back below 14%. In the US, the S&P500 was slightly up and this morning Asian indices were down. Bond markets / Derivatives Selloff on Tuesday sparked by the rise in US interest rates, with a further compression of spreads, save Italy, which underwent a consolidation. Swap spreads and the different euro bases underwent another compression in a context rife with new issues. As regards implied volatility, movements concerned mainly vega (issuance), short maturities tending to come in for some selling. The yield for the 10-year TNote increased by 4bp to 2.97%. The US 10-year swap held stable just above 6bp. Money markets / Central banks Even though bid-to-covers for the TBill auctions reached 3.02, demand was not exceptional judging from other indicators. The US 3-month Libor-OIS has still not managed to break below the 20bp support. The EFFR remains 3bp below the IOER. Generally speaking, Libor contracts headed lower, in particular Eurodollar and Short Sterling contracts, which shed around 3bp-4bp right across the strip. FX Limited movements by G10 currencies, with the Norwegian krone gaining 0.6% against the US dollar. As regards emerging currencies, the big losers were the Brazilian real and Argentine peso, which shed 1.75% and 1.43% against the greenback, respectively. The winner was the Russian ruble , which appreciated by 1.21%. Commodities L The spread between Brent and WTI reached $10/ bbl , its widest level since the start of June, as expectations of a decrease in supply from the reintroduction of sanctions on Iran were offset by excess supply in the United States.