EGBS: French Political Speculation Spurs Further OAT/Bund Widening

Speculation surrounding the possible resignation of French President Macron triggered a renewed sell-off in OATs, alongside a bid in German paper, as EGB spread moves dominated.

• The moves have since faded from extremes after the Elysée denied the speculation.
• The 10-year OAT/Bund spread is above 60bps and tested ’23 wides during today’s vol.
• OATs were underperforming before the rumours did the rounds, with Moody’s noting that France’s snap election was negative for the country’s credit rating, a sentiment echoed by Morningstar DBRS yesterday.
• Bunds are +15 at 129.80, after reaching knee-jerk highs of 129.98.
• Meanwhile, OAT futures are -60 at 122.70, hitting the lowest level seen since October 2023.
• The French cash curve has bear steepened, with the 2s10s curve hitting multi-week steeps.
• The German curve has lightly bull steepened.
• 10-year peripheral spreads to Bunds have widened alongside OATs, with the BTP/Bund spread around 5bps wider at 145bps at typing.
• While political matters continue to dominate regionally, wider market focus remains on tomorrow’s US CPI data and FOMC decision.