Euro bond yields decline ahead of the European Central Bank meeting

Government bond yields in the euro zone fell slightly on Thursday, affected by oil price movements, as investors awaited the European Central Bank's monetary policy meeting later in the day.

Brent crude futures fell on Thursday, giving up some of the gains recorded the previous day, after media reports reported that US Vice President J.D. Vance sought to revive peace negotiations by sending a message to Mohsen Rezaei, head of Iran's Supreme National Security Council.

Investors expect that the European Central Bank will not provide any guidance on the path of interest rates in the next stage, according to Reuters.

In early October, traders reduced their bets on the European Central Bank raising interest rates in the future, while these expectations have largely stabilized since then. Euro short-term interest rate (ESTR) futures indicate expectations that the deposit rate will rise to 3.23 percent by late 2027, and to 2.73 percent by December, from its current level of 2.50 percent.

Harry Jones, portfolio manager at Insight Investment, said that the eurozone faces an increasing mix of pressures, represented by resilient economic growth and renewed inflationary pressures resulting from rising energy prices. He added that the European Central Bank may have to tighten monetary policy further if the shock persists.

But he pointed out that keeping inflation close to the target level gives policy makers room to evaluate the inflationary effects of the second round.

Jones explained that the danger lies in the fact that excessive tightening of monetary policy at the present time will weaken economic growth to a degree that may require a rapid reversal of this policy in 2027.

Second-round inflationary effects occur when an initial price shock, such as a sharp rise in energy prices, leads to broader increases in wages and prices, keeping inflation high even after the original shock has passed.

The 10-year German government bond yield, the benchmark for bond yields in the euro zone, fell by 2.5 basis points to 3.36 percent.

The two-year German bond yield, which is most affected by interest rate expectations, also fell by 3.5 basis points to 3.07 percent, after US borrowing costs fell during Asian trading.

The US Federal Reserve kept interest rates unchanged on Wednesday, as expected, preferring to postpone any adjustments to borrowing costs until after the US midterm elections scheduled for next week.

The difference in yields between French government bonds (OAT) and their German counterparts (Bunds) settled at about 153.50 basis points, after reaching 177.70 basis points last week, recording its highest level since November 2011.

European stocks recorded a slight rise, Thursday, ahead of the European Central Bank's monetary policy meeting, at a time when investors evaluated a new batch of positive corporate results.

By 08:06 GMT, the European Stoxx 600 index rose by 0.11 percent to reach 644.80 points, according to Reuters.

The European Central Bank is widely expected to keep interest rates unchanged at 2.50 percent, while attention will be on the comments of its president, Christine Lagarde, on the French bond crisis, as well as speculation regarding her future in office.

Corporate results, which have been the main driver of market sentiment recently, remained the focus of investors' attention.

Shell announced net profits of $10.81 billion in the third quarter, exceeding expectations and recording its highest level since 2022. The company also strengthened its share buyback program, pushing its stock to rise by 2.6 percent.

The energy sector rose by 1 percent, while the FTSE 100 index on the London Stock Exchange rose by 0.3 percent.

Airbus shares also rose by 3.2 percent, after the company maintained its expectations for the full year and its production plans, despite announcing mixed results for the third quarter.

On the other hand, the technology sector declined by 0.7 percent, affected by the weakness of the sector globally, after investors evaluated the results of Alphabet. The company's shares fell by 10.8 percent in trading before the opening of the US market, following the announcement of revenues that fell below expectations, coinciding with an increase in cash spending on financing artificial intelligence infrastructure.

The American law firm Weill Gotshall & Mangs is heading to end its operations, in a development that ends the career of one of the most prominent legal institutions in the United States, nearly a century after its founding, amid the failure of attempts to contain the wave of exits of prominent partners and lawyers, and the faltering of merger talks with another office.

The office's leadership informed the partners on Wednesday of the Administrative Committee's recommendation to proceed with an orderly liquidation of the business, after reviewing the available strategic options. The office said in a statement that it will continue to serve its clients during the coming months, while maintaining the level of professional performance that has distinguished its work since its establishment, and continuing to support its employees and colleagues during the termination phase.

The office hired Alex Partners, a company specializing in consulting and restructuring, to provide advice on liquidating its operations, according to a person familiar with the matter who was quoted by Reuters. The process is scheduled to be carried out outside the bankruptcy proceedings, while the assistant lawyers and staff have been informed that they will continue to receive their salaries for 90 days, along with the payment of bonuses at the end of 2026.

This development represents a sharp decline for a legal institution that was founded in 1931 and has been prominent over the decades in bankruptcy, restructuring, acquisition deals, and major commercial disputes. The office achieved revenues exceeding two billion dollars last year, which placed it in the top quarter of American law firms in terms of revenues.

Exit of partners and failure of the merger

In recent months, Weill Gottshall has faced a series of departures that have affected prominent names in its legal ranks, at a time when major law firms are competing to attract partners with profitable businesses, especially in the areas of private equity, mergers and acquisitions, and litigation.

One of the most notable departures was Michael Aiello, head of the firm's corporate department, who moved to Cravath Swain & More, taking with him five partners. Private equity specialist Christopher Machera also left for Paul Weiss Rifkind Wharton & Garrison, and two partners in London who work in mergers and acquisitions moved to Sullivan & Cromwell. Other lawyers also moved to Simpson Thatcher & Bartlett and competing offices.

The firm announced in March that Ramona Nee, a partner specializing in private equity, would succeed Barry Wolf, the long-time executive partner. But Ni recently decided not to take the position, according to a person familiar with the matter.

An effort to merge with Willkie Farr & Gallagher also faltered, according to previous reports, while Will Gottshall has hired Davis Polk & Wardwell to help with restructuring as lawyers continue to leave.

These developments reflect the pressures facing major law firms in light of escalating competition to attract high-revenue partners. The generous compensation packages that firms use to attract talent may increase their financial vulnerability when key partners leave and other legal teams follow.

A legacy of major bankruptcy cases

The office was founded by Frank Weil, Sylvan Gottschall, and Horace Mangs, and gained wide fame in the field of bankruptcy, by providing advice in prominent cases that included “General Motors,” “Enron,” and “Lehman Brothers,” whose bankruptcy represented the largest Chapter 11 bankruptcy case in the United States.

Despite the size of its business, the average profits of each contributing partner in the office amounted to about $5.4 million, according to American Liar magazine, which is about half the average that exceeded $10 million in the offices of Kirkland & Ellis and Wachtel Lipton Rosen & Katz.

The fate of “Weill Gottshall” brings to mind the collapse of the “Dewey & Lubov” office in 2012, after it included more than 1,300 lawyers when it was founded through a merger in 2007. The departure of lawyers at that time, in addition to debts and large financial obligations towards current and retired partners, contributed to its collapse.

In contrast, other major offices have resorted to mergers to enhance their stability after the departure of lawyers and partners. This year, Cadwalader Wickersham & Taft merged with Hogan Lovells, while in 2024, Sherman & Sterling merged with the British office, Allen & Overy, to form A&O Sherman.