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BONDS: EGBs-GILTS CASH CLOSE: OAT Underperformance Continues

BONDS
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French political risk remained the dominant theme in EGBs Monday, with OAT underperformance continuing.

  • The 10Y OAT/Bund spread rose over 7bp to 88bp, a fresh post-2012 closing high, with the government facing no confidence motions after PM Barnier said it will attempt to force through its social security bill without a vote.
  • The spread closed 7bp above the session's lows which were reached in early trade, as it looked like a no confidence vote could be averted after government fiscal concessions to the far-right.
  • Implied market pricing for a 50bp ECB cut next week pulled back by around 2bp (to 30bp), with Bunds gaining fairly steady throughout the session.
  • Gilts traded without clear direction, closing with a decent rally (mirroring Treasuries, rather than any local developments) to avoid losses for the day but still leaving UK instruments underperforming German counterparts.
  • The UK curve bull flattened, with the German belly outperforming on the curve. The French sell-off spilled over into periphery EGBs, though OATs were still the underperformer overall.
  • Tuesday's calendar includes Spanish labour market data and ECB speakers (Cipollone, Panetta), with some attention on Swiss CPI.

Closing Yields / 10-Yr EGB Spreads To Germany

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French political risk remained the dominant theme in EGBs Monday, with OAT underperformance continuing.

  • The 10Y OAT/Bund spread rose over 7bp to 88bp, a fresh post-2012 closing high, with the government facing no confidence motions after PM Barnier said it will attempt to force through its social security bill without a vote.
  • The spread closed 7bp above the session's lows which were reached in early trade, as it looked like a no confidence vote could be averted after government fiscal concessions to the far-right.
  • Implied market pricing for a 50bp ECB cut next week pulled back by around 2bp (to 30bp), with Bunds gaining fairly steady throughout the session.
  • Gilts traded without clear direction, closing with a decent rally (mirroring Treasuries, rather than any local developments) to avoid losses for the day but still leaving UK instruments underperforming German counterparts.
  • The UK curve bull flattened, with the German belly outperforming on the curve. The French sell-off spilled over into periphery EGBs, though OATs were still the underperformer overall.
  • Tuesday's calendar includes Spanish labour market data and ECB speakers (Cipollone, Panetta), with some attention on Swiss CPI.

Closing Yields / 10-Yr EGB Spreads To Germany

Keep reading...Show less