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BONDS: EGBs/GILTS CASH CLOSE: BTP Spreads Unwind Bulk Of France-led Widening

BONDS
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10-year EGB spreads to Bunds have mostly tightened through the session, unwinding a sizeable portion of yesterday's sharp OAT-led widening.

  • French paper unsurprisingly lagged, with political uncertainty set to remain prevalent into year-end. The OAT/Bund spread was at one point 2bp tighter today at 84bps but ended up almost unchanged at 85.7bp after yesterday’s lurch higher.
  • The BTP/Bund spread mostly unwound yesterday's widening in contrast, down almost 3bps today at 125bps despite a late intraday widening.
  • The relative political stability in Italy compared to France has supported BTP outperformance over OATs since the French snap legislative elections were announced in early June. 10-year BTP/OAT spread has extended multi-decade lows through November and now trades below 40bps.
  • Alongside the ongoing risk of Government collapse, S&P are due to review France's sovereign rating on Friday, which presents a further potential headwind for OATs.
  • Gilts saw sizeable outperformance meanwhile, with 10Y yields sliding 5.8bps despite little in the way of domestic inputs.
  • Gilt futures traded as high as 95.68 in the main session with a lack of conviction before lifting to a high of 95.70 just prior to the close. Next resistance nearby at the 1.764 projection of the Nov 18-19-20 price swing (95.73). A break there would expose the 2.00 projection of the same move (96.03) and pose deeper threat to the bearish trend.
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10-year EGB spreads to Bunds have mostly tightened through the session, unwinding a sizeable portion of yesterday's sharp OAT-led widening.

  • French paper unsurprisingly lagged, with political uncertainty set to remain prevalent into year-end. The OAT/Bund spread was at one point 2bp tighter today at 84bps but ended up almost unchanged at 85.7bp after yesterday’s lurch higher.
  • The BTP/Bund spread mostly unwound yesterday's widening in contrast, down almost 3bps today at 125bps despite a late intraday widening.
  • The relative political stability in Italy compared to France has supported BTP outperformance over OATs since the French snap legislative elections were announced in early June. 10-year BTP/OAT spread has extended multi-decade lows through November and now trades below 40bps.
  • Alongside the ongoing risk of Government collapse, S&P are due to review France's sovereign rating on Friday, which presents a further potential headwind for OATs.
  • Gilts saw sizeable outperformance meanwhile, with 10Y yields sliding 5.8bps despite little in the way of domestic inputs.
  • Gilt futures traded as high as 95.68 in the main session with a lack of conviction before lifting to a high of 95.70 just prior to the close. Next resistance nearby at the 1.764 projection of the Nov 18-19-20 price swing (95.73). A break there would expose the 2.00 projection of the same move (96.03) and pose deeper threat to the bearish trend.