Rates Weekly: A cautious reopening

EUR rates:Recap of the week: The end of the US shutdown brought more uncertainty than relief, as hawkish Fed comments and missing economic data kept Treasury yields high and equities lower. Eurozone rates followed, with Bund yields rising amid the transatlantic pressure and structural flows from Dutch pension funds. In sovereign spreads, France outperformed on budget optimism while Italy lagged.Tactical view: We turn slightly bearish on duration, awaiting with the new for 10Y Bund around 2.65-2.75%. Structural steepening drivers for EUR 10s30s remain, but we continue to recommend a neutral positioning until year-end, expecting limited movement. We keep our tightening bias for swap spreads, targeting -5bps on Bund. In spreads, we see potential stability in French OATs amid political uncertainties.Insights of the week: Ahead of the Autumn Budget, the UK Gilt market is extremely sensitive to fiscal policy. A recent rally was fueled by expectations of a tax hike to ensure fiscal discipline. However, the government's subsequent U-turn on this plan has backfired, creating renewed policy uncertainty that unnerves investors supporting the high risk premium on Gilts.US rates:On our recent client tour in Asia, we presented our outlook for 1.8% growth in 2026, an unemployment rate up to 4.7% by Q1 before stabilizing slightly lower, sticky 3% inflation, and the Fed easing to 3% by April. A recurring theme in our conversations was the Fed's willingness to ease after Powell's hawkish stance, despite growing economic concerns. Other questions ranged widely, from the next Fed Chair to the impact of AI, leaving us with the sense that market positioning is light while awaiting new catalysts.