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EGBS: OATs Widen Further As Political Uncertainty Persists Ahead Of Election

EGBS

Uncertainty ahead of this weekend’s French legislative election pushes OATs wider vs. EGBs, also providing pressure for wider FI markets.

  • OAT futures -29 at 123.11, initial support at 122.88 (equivalent to the ‘24 high in cash yields at 3.327%).
  • Today’s move has seen the 10-year OAT/Bund spread trade close to 85bps, following the first close above 80bp since 2012.
  • 10-year peripheral spreads to Bunds have widened alongside OATs, with the BTP/Bund spread hovering around 160bps for the first time since January.
  • German cash yields are 1-2bps higher today, while the French and Italian curves have seen a more pronounced bear steepening.
  • The French, Spanish and Italian flash June HICP prints were all in line with consensus, thus were not market movers.
  • ECB inflation expectations softened a touch, printing in line with/a little below consensus.
  • Broader macro focus now turns to the US PCE report for May, with month-end flows also eyed (broader EGB month-end extensions are seen as average to slightly sub-par in size terms).
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