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OAT: Some Intraday Respite, Fiscal Risks Remain Elevated

OAT
CEEMEAEurozoneFranceBulletMarketsFixed Income Bullets

Outperformance for OATs vs. most EGBs this morning, broader EGB spread compression to Bunds aided by the bid in European equities, before both moves stall.

  • 10s last 2.93%, ~1bp higher on the day after trading in a 2.858-2.944% range yesterday (session low represented the lowest level seen since early October).
  • OAT/Bunds hit a fresh cycle closing high of 88.4bp yesterday, last ~86bp.
  • The spread has registered the highest level seen since ’12, peaking at ~89bp intraday, with 90bp providing the next notable upside target if the widening extends further.
  • Above there, there is little of note before the psychological 100bp level.
  • SPGB/OAT/PGB fly hit a fresh cycle closing low at around -55bp yesterday.
  • Commerzbank remain defensive when it comes to the idea of OAT exposure, recommending shorts vs. SPGBs & PGBs, while suggesting instances of outperformance should be used to exit long OAT cross-market plays.
  • They believe that “prospects of sustainable fiscal consolidation remain tenuous, reinforcing that fiscal risks will persist over the medium term, especially, as the economic situation offers little relief.”
  • Our political risk team outlined the next steps for French fiscal policy in a recent bullet (assuming the government loses tomorrow’s no-confidence vote).
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Outperformance for OATs vs. most EGBs this morning, broader EGB spread compression to Bunds aided by the bid in European equities, before both moves stall.

  • 10s last 2.93%, ~1bp higher on the day after trading in a 2.858-2.944% range yesterday (session low represented the lowest level seen since early October).
  • OAT/Bunds hit a fresh cycle closing high of 88.4bp yesterday, last ~86bp.
  • The spread has registered the highest level seen since ’12, peaking at ~89bp intraday, with 90bp providing the next notable upside target if the widening extends further.
  • Above there, there is little of note before the psychological 100bp level.
  • SPGB/OAT/PGB fly hit a fresh cycle closing low at around -55bp yesterday.
  • Commerzbank remain defensive when it comes to the idea of OAT exposure, recommending shorts vs. SPGBs & PGBs, while suggesting instances of outperformance should be used to exit long OAT cross-market plays.
  • They believe that “prospects of sustainable fiscal consolidation remain tenuous, reinforcing that fiscal risks will persist over the medium term, especially, as the economic situation offers little relief.”
  • Our political risk team outlined the next steps for French fiscal policy in a recent bullet (assuming the government loses tomorrow’s no-confidence vote).