EGBS: Bunds Slightly Underperform OATs Following French Election Result

Bund futures slightly underperform OATs as markets unwind a degree of political risk premium following the French second round legislative election results.

• OAT futures are currently -17 at 123.72, though reached an intraday low of 123.36 before the European cash open.
• The leftist NFP surprisingly won the most votes in the second round, though fell well short of an overall majority.
• The result has provided a fresh wave of uncertainty around French politics (and by extension, fiscal dynamics), prompting initial sell-side reactions to be cautious on OATs.
• The German and French cash curves have lightly bear flattened, while the 10-year OAT/Bund spread is around ~0.5bp tighter at ~64.5bps.
• 10-year peripheral spreads to Bunds have followed OATs tighter.
• The remainder of today’s regional calendar is light, leaving focus on the French election fallout.