EGBS: Under Pressure After Initial Unwind Of Political Risk Premia

After unwinding some of the political risk premium that was priced in ahead of Sunday’s French election, core/semi-core EGBs have come under broad-based pressure.

• The results from first round French election voting were in line with expectations, with the far-right RN winning the most seats but likely falling short of an absolute majority.
• OAT and BTP futures thus began the week on a positive note, before reversing course over the past 2 hours.
• After reaching a multi-year wide at 85bps last week, the 10-year OAT/Bund spread tightened to ~72bps at the open but has since widened back to ~75bps. 
• German state-level inflation data pointed to modest downside risks to the 2.3% Y/Y national consensus (due 1300BST), but the lack of a larger downward surprise provided little support to EGBs.
• Final June manufacturing PMIs were not market moving.
• Alongside French election developments, broader regional focus is on tomorrow’s Eurozone-wide flash PMI release and the ECB’s Sintra conference, which begins this evening.