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EGBS: SPGB/OAT/PGB 10-Year Fly Moves Towards -50bp

EGBS

We have been monitoring the SPGB/OAT/PGB 10-Year fly for some and the structure sits at the lowest level seen since ’06, nearing -50bp.

  • Last -48bp vs. ’06 lows of -66.3bp
  • With French fiscal and political risk remaining present, it is hard to envisage a scenario whereby the trend is reversed, at least in the immediate term.
  • A brief recovery was seen in late October/early November, as passive index inclusion flows into PGBs faded and the fiscal impact of the Valencia floods was considered.
  • That was before the French risks mentioned above re-emerged, which helped relative fiscal trajectories of the 3 countries reassert themselves in the structure.
  • Indeed, Commerzbank warn that “OATs remain vulnerable, above all vs. Iberia.”

Fig. 1: SPGB/OAT/PGB 10-Year Butterfly (%)

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We have been monitoring the SPGB/OAT/PGB 10-Year fly for some and the structure sits at the lowest level seen since ’06, nearing -50bp.

  • Last -48bp vs. ’06 lows of -66.3bp
  • With French fiscal and political risk remaining present, it is hard to envisage a scenario whereby the trend is reversed, at least in the immediate term.
  • A brief recovery was seen in late October/early November, as passive index inclusion flows into PGBs faded and the fiscal impact of the Valencia floods was considered.
  • That was before the French risks mentioned above re-emerged, which helped relative fiscal trajectories of the 3 countries reassert themselves in the structure.
  • Indeed, Commerzbank warn that “OATs remain vulnerable, above all vs. Iberia.”

Fig. 1: SPGB/OAT/PGB 10-Year Butterfly (%)

Keep reading...Show less