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EGBS: Limited Readthrough From Weakness In Oil, OATs The Driver Of The Rally

EGBS
EurozoneBulletGlobalFixed Income BulletsRegionMarkets

While the move lower in crude oil futures will be factoring into the rally in EGBs, we suggest the impact is only relatively minor at this stage. Traded inflation measures are only seeing a very modest move lower (EUR 5y5y -0.5bp).

  • The rally in OATs, centred on French PM Barnier’s apparently impending fiscal tightening announcement, seems to be the driver of the broader rally/general EGB spread tightening to Bunds.
  • While OATs will face further fiscal and sovereign credit rating challenges, the outline of the initial stages of fiscal tightening (and the assumption that they will be passed by the French government) is being viewed positively by the market.
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While the move lower in crude oil futures will be factoring into the rally in EGBs, we suggest the impact is only relatively minor at this stage. Traded inflation measures are only seeing a very modest move lower (EUR 5y5y -0.5bp).

  • The rally in OATs, centred on French PM Barnier’s apparently impending fiscal tightening announcement, seems to be the driver of the broader rally/general EGB spread tightening to Bunds.
  • While OATs will face further fiscal and sovereign credit rating challenges, the outline of the initial stages of fiscal tightening (and the assumption that they will be passed by the French government) is being viewed positively by the market.