Macro Bites – French Bond Yields Cross 5% as Budget Pressure Mounts

Yemen’s Iran-backed Houthis have launched an unprecedented wave of drone and ballistic missile attacks over the past 48 hours against civilian airports, oil infrastructure, and cities across Saudi Arabia, killing multiple people, causing widespread travel disruptions, and prompting the U.S. State Department to order non-emergency personnel and families to depart the Kingdom. Specifically, the Houthis targeted the Saudi Defense Ministry in Riyadh, King Fahd International Airport in Dammam, an Aramco facility in Yanbu and Abha International Airport.

Iran's Islamic Revolutionary Guard ​Corps said ‌on Thursday that its Navy struck four oil tankers traveling through the Strait of Hormuz and an additional three ships hit naval mines and were immobilized as a result.  If confirmed, the seven incidents would mark the largest single day total in the waterway since the start of the war in February. The IRGC further warned the U.S. military ​that continued provocations ​could ⁠lead to a wider response ⁠against ​its regional ​bases.

Copper slid as LME inventories surged for a second day and a selloff in AI-related stocks sapped risk appetite across global markets.  LME copper futures dropped as much as 2% to a low of $14,076/t, tracking losses in equities markets after earnings from major tech companies failed to reassure investors about the durability of the AI trade.  The metal’s retreat from last month’s record high of $14,875/t has also been fueled by doubts over whether the President Trump will impose tariffs on refined copper imports.

Middle East oil flows averaged more than 24M bpd in the week ended 10/18, surpassing pre-war levels even as Tehran ramped up its attacks. This total is up from a conflict low of 6.7M bpd. However, Goldman Sachs estimates the global average crude freight rate is above $20bbl, compared with $3bbl a year ago.  Certain Middle Eastern routes are above $35bbl.

The yield spread between 10-year French OAT’s (Obligation Assimilable du Trésor) and German Bunds widened to 173.58 basis points, marking its widest level since Nov. ‘11 during the eurozone debt crisis.