September finally delivered the long waited for Fed cut after benign monthly NFP payrolls and CPI data. It was worth the wait with a jumbo 50bp move that had not been fully priced. As usual the market extrapolated a “Fed behind the curve” and “what do they know that we don’t” type of response, rapidly pricing in further cuts of that magnitude. The 2-10 treasury curve recent steepening was vindicated and pushed on through into positive territory after a record 2 years and 2 months inverted.
Other G10 central banks were active in September with ECB, Riksbank, BoC and SNB all lowering by 25bp. Economic data in the Euro area continued to surprise to the low side, with thoughts now turning to an increase in pace of cuts. Politically, President Macron of France finally appointed Michel Barnier Prime Minister, which did little to improve the spread of French 10y Oat vs German Bunds, widening back out towards August highs of 80bp. Not least driven by the French fiscal deficit for 2024 revised again, this time to -6% (from an original -4.4%). The US elections being just only a month away is now firmly on the radar and will increasingly move markets in portfolio pre hedging.
The US 10y closed the month 12.2bps lower and 5s-30s swap was 9.9bps steeper.
