〔Day Digest〕OATs Snap Back to 4.82% as ECB Repo Eyed; Dollar Eyes 4th Weekly Gain on ~3% Cumulative Rise — Japan Carry Exit Reshapes the Sovereign Map

0. Weekly Arc

The global bond selloff that has punished European sovereigns and lifted the 10Y UST to a multi-decade high of 5.28% ^[1] is showing cracks at the margin — French 10Y OATs led a euro-area rally on Thursday with the yield falling 8bp to 4.82% ^[2], after intraday prints near 5% earlier in the week, the highest since 2002 ^[1]. The dollar is on track for a fourth consecutive weekly gain, the longest streak since early 2025, with a cumulative rise near 3% ^[3]. The through-line: a Japan carry exit is reshaping the sovereign map ^[4][1].

1. Sovereign Bond Stress and the Japan Channel

• **[ESCALATED] France as the first casualty:** the 10Y OAT yield touched nearly 5% intraday, above Greek and Italian borrowing costs — the highest since 2002 — before snapping back 8bp to 4.82% on Thursday ^[1][2]. Sumitomo Mitsui DS Asset Management's global fixed-income fund, led by Shinji Kunibe, exited French bonds over fiscal concerns ^[1].
• **[ONGOING] UST 10Y at 5.28%:** a multi-decade high, with even soft inflation failing to stem the selloff ^[1].
• **[NEW] Mechanism — Japan carry unwind:** Japanese investors hold roughly 23 trillion yen (~$145 billion) in French OATs, the largest overweight euro-area position; with the 10Y JGB yield above 3% (a 30-year high), the FX-hedged yield advantage of French 10Ys over JGBs has narrowed to about 40bp ^[1]. Japanese holdings of French debt are down 2.5% from year-end; Mizuho's Masayuki Nakajima said cheaper valuations are not rebuilding the incentive to re-enter ^[1].
• **[NEW] Bank views:** MUFG sees sterling as more attractive than euro on French fiscal risk; Societe Generale expects the French OAT market to be dominated by domestic investors; ING says the ECB's September hike had broad support but an October follow-up is unlikely; Danske Bank says the dollar will stay strong and UST yields could head to 6%; State Street says structural drivers of the gold bull market remain intact; Capital Economics sees limited room for further steepening of major government yield curves ^[5].
• **[NEW] AI-vs-deficit capital war:** a Chinese-language commentary argues AI capex and government deficits are competing for the same pool of capital, with Japanese investors becoming more selective — French bonds the first casualty, USTs next ^[4].

2. Policy Tools, Liquidity, and Sovereign Credit

• **[NEW] ECB repo under the microscope:** analysts argue the ECB should follow the Bank of England's lead and cut the cost of its main refinancing operations (MRO) to reduce the stigma around its use; bank uptake has been low because market funding is cheaper, and using the facility could be read as a sign of distress ^[6][7].
• **[NEW] UK monthly inflation:** the UK will adopt seasonally adjusted monthly inflation data from early next year, mirroring US practice, to better capture turning points; the ONS currently publishes annual inflation (the BoE's primary metric) and unadjusted month-on-month changes ^[8].
• **[ONGOING] FSB warning:** only the US, UK, Japan, and Hong Kong have a credible public-sector backstop for troubled lenders, leaving most countries unprepared for bank failures ^[9].
• **[NEW] Hungary 2027 package:** Hungary's Prime Minister announced plans to raise healthcare spending by 500 billion forint (~$1.5 billion) in 2027, with the government expecting to raise 200 billion forint (~$615 million) from a wealth tax the same year ^[10][11].
• **[NEW] Fitch reaffirms Australia AAA:** outlook stable ^[12].
• **[NEW] Philippines to adopt international bond pricing:** peso-denominated government bonds will move to international pricing conventions from next year to broaden the investor base and lower borrowing costs ^[13].
• **[NEW] Ecobank-China yuan payments:** Ecobank Transnational will step up direct yuan payment services for clients trading with China and opened its first Beijing office; an MOU with China's Cross-Border Interbank Payment System was signed; CEO Jeremy Awori cited easing Africa's USD liquidity pressure ^[14][15].

3. Asia, Data, and Falsification Tests

• **[NEW] Malaysia 2027 budget measures:** the Prime Minister announced a personal income tax exemption raised to 12,000 ringgit from 9,000 ringgit and a one-percentage-point cut in the resident personal income tax rate; the Finance Minister separately proposed a one-percentage-point cut in the income tax rate for micro, small, and medium enterprises to offset rising operating costs, and a hike in the monthly minimum wage from 1,700 ringgit to 2,000 ringgit ^[16][17][18].
• **[NEW] Malaysia data-center demand:** Tenaga Nasional expects 2027 Peninsular Malaysia electricity consumption of 148.66 TWh, a 4.9% rise from 141.87 TWh forecast for 2026; actual data-center load hit 710 MW in 2025, up from 405 MW in 2024 ^[19].
• **[NEW] Hong Kong high-yield deposits:** HKD ordinary time deposits range 3% to 3.3-3.45% across 6-12 months; USD time deposits cluster at 3.6-4.3%; CCB Asia offers 7.88% HKD/RMB and 8.88% foreign-currency 3-month time deposits for new VIP wealth customers with HKD 1-3 million in fresh funds, of which only 15% of new funds earn the top rate; ZA Bank offers up to ~20% on 7-day RMB FX-linked deposits and ~17% on USD ^[20].
• **[NEW] Asian FX steady:** USD/JPY at 157.98 (+0.07%), USD/KRW at 1,341.28 (-0.08%), AUD/USD at 0.6974 (+0.3%) as markets await the U Michigan preliminary consumer sentiment release ^[21].
• **[NEW] Italy August industrial production:** adjusted output +0% y/y vs +2.1% expected (prior revised to -0.1%); -1.3% m/m vs 0% expected (prior revised to +0.6%) ^[22].
• **[NEW] Switzerland September consumer confidence:** -35.8 vs -31.5 expected, prior -32.8 ^[23].
• **[NEW] Germany Monday baseload electricity:** +116.3% to €212/MWh ^[24].
• **[NEW] UNCTAD cut 2026 global growth to 2.6%** from 2.9% in 2025; developing-economy growth seen slowing to 4% from 4.7%; 59% of 2026 global growth is expected to come from Asia; East Asia sits at the center of semiconductor and advanced-computer manufacturing expansion; AI products are the main driver of goods trade but AI-linked trade growth does not automatically translate into broad development gains ^[25].