After just ten months in office, France once again finds itself without a functioning government. French Prime Minister Bayrou has lost the vote of confidence in the National Assembly. His draft budget, which proposed drastic spending cuts, failed to gain the support of the opposition. As a result, France’s public deficit could rise to around six per cent of GDP next year. The Stability and Growth Pact allows for a maximum of only 3%. An ambitious budget along with the necessary reforms now appears to have been pushed further into the distance. This was met with a deterioration in financing conditions in the bond market.

At Jackson Hole in August, Jerome Powell opened the door to a possible interest rate cut. The Fed operates under a dual mandate: price stability and employment. In his speech, Powell pointed to growing risks for the labour market. In recent months, job creation has slowed noticeably, and the unemployment rate has edged up slightly. Following Powell’s remarks, yields on US government bonds declined.

In September, the Fed decided to cut interest rates by 25 basis points. The Fed’s new target range now stands at 4.0–4.25%. The ECB, for its part, maintained a wait-and-see stance and kept the deposit rate unchanged at 2%.

In this environment, corporate bonds performed well, with credit spreads narrowing. By contrast, term premiums on longer-dated government bonds increased. The continued rise in government debt put pressure on long-term government bonds.

The US dollar remained steady against the euro over the course of the quarter. Although the US dollar strengthened at the beginning of the quarter, it gave up those gains by the end of the period. By the end of the quarter, the currency pair was trading virtually unchanged.

LiLux Rent gained around 1.8% in the third quarter. The sale of the convertible bond LG Chem 28 1.75% had a positive impact, generating a price gain of around 12.5%. In addition, currency exposure to the Swedish krona was gradually reduced over the course of the third quarter.