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OAT: OAT/Bunds Below 75bp On Wider Carry Demand, OATs Also Bid Vs. SPGBs & PGBs

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The 10-Year OAT/Bund spread is on track for the first close below 75bp since early November, last ~2.5bp tighter on the day at 73.9bp.

  • The 75bp level had acted as a bit of a floor for the spread in recent weeks, fortified by the well-documented French political and fiscal risks.
  • There hasn’t been much in the way of fresh French news for markets to digest this week, outside of strong demand at yesterday’s 15-Year OAT syndication, which would have been an OAT positive.
  • While the local risk backdrop has not changed, broader market sentiment is dictating price action.
  • Today’s move has been driven by broader carry demand/EGB spread tightening to Bunds, aided by the fresh record highs in several benchmark European equity indices.
  • It is hard to be sure where the tightening of the spread will base. The obvious near-term target comes at the November closing low (~73bp), followed by October’s closing low (71.6bp).
  • The move below 75bp in the spread has also triggered some performance for OATs on the 10-Year SPGB/OAT/PGB fly, which is set to register the highest close of the year (-46.1bp).

Fig. 1: 10-Year OAT/Bund Spread (bp)

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The 10-Year OAT/Bund spread is on track for the first close below 75bp since early November, last ~2.5bp tighter on the day at 73.9bp.

  • The 75bp level had acted as a bit of a floor for the spread in recent weeks, fortified by the well-documented French political and fiscal risks.
  • There hasn’t been much in the way of fresh French news for markets to digest this week, outside of strong demand at yesterday’s 15-Year OAT syndication, which would have been an OAT positive.
  • While the local risk backdrop has not changed, broader market sentiment is dictating price action.
  • Today’s move has been driven by broader carry demand/EGB spread tightening to Bunds, aided by the fresh record highs in several benchmark European equity indices.
  • It is hard to be sure where the tightening of the spread will base. The obvious near-term target comes at the November closing low (~73bp), followed by October’s closing low (71.6bp).
  • The move below 75bp in the spread has also triggered some performance for OATs on the 10-Year SPGB/OAT/PGB fly, which is set to register the highest close of the year (-46.1bp).

Fig. 1: 10-Year OAT/Bund Spread (bp)

Keep reading...Show less