European Risk Sentiment Rises as Oil Falls and Bond Yields Decline

Market snapshot:

Asset performance overview:

• 10-year Treasury yield declined 3.4 basis points to 5.273%.
• Euro was the strongest currency; yen was the weakest.
• Gold advanced 0.95% to $4178.54.
• WTI crude fell 2.67% to $87.09.
• European stock indices were mostly higher; S&P 500 futures rose 0.46%.
• Bitcoin gained 0.47% to $86,144.

Risk appetite was positive during the morning session, with the US dollar retreating, equities advancing and Treasury yields falling. The improvement may have been driven by lower oil prices; WTI crude was down 2.56% on the day, though no catalyst was apparent. The absence of any direct confrontation between the US and Iran since the UN General Assembly has also supported the risk-on mood.

The OAT-Bund spread narrowed further this morning, after Friday's widening peaked at the highest level since the European debt crisis. Some of the tightening may have resulted from position squaring given the overextended levels, but the French government also revealed plans to sharply reduce the budget deficit through spending restraint and higher tax revenues. The bond market scare has forced a policy pivot, which could lead to a major reversal.