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OAT: OAT/Bund Spread More Than Unwinds Yesterday’s Widening

OAT

Today’s OAT outperformance likely reflects an unwind of yesterday’s price action, which saw the 10-year OAT/Bund spread approach levels not seen since the midst of the late-June election uncertainty. 

  • The OAT/Bund spread is currently ~2bps tighter at ~77bps, with BTPs and Spanish Oblis seeing a more modest intraday narrowing.
  • While recent risk-off moves have warranted a widening of spreads to Bunds, it is hard to justify OAT/Bund settling above 80bps without further developments around the domestic political/fiscal backdrop.
  • French politics are on hiatus at least until the Olympics conclude on August 11, with PM Attal and the Cabinet still in place in a caretaker capacity.
  • Upon the conclusion of the Games, markets will refocus on how the current political impasse can be resolved. Our political risk team have written on possible scenarios here: https://marketnews.com/politics-on-hiatus-as-olympics-get-underway

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