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EGBS: OATs Widen, Bayrou Cautious On Budget Prospects

EGBS
BulletEurozoneFixed Income BulletsMarkets

EGB spreads to Bunds 0.5bp to 1.5bp wider on the day, with OATs under the most pressure.

  • Weakness in equities playing into the widening theme intraday.
  • Elsewhere, French PM Bayrou wants to name a cabinet over the weekend/by Christmas at the very latest. Bayrou also aims to formalise a Budget by around mid-February, although he conceded that he is “not sure we’ll get there.” Continued fiscal uncertainty is set to limit any relief rallies in OATs and is weighing on French paper early today.
  • OAT/Bunds last ~82.5bp, around the middle of the 75.5-88.4bp range witnessed month-to-date (based on closes).
  • The rebound from cycle lows in the SPGB/OAT/Bund fly has also stalled, last -45.3bp, trading in a -55.0bp to -41.8bp range month-to-date (based on closes).
  • Iberian longs vs. OATs remain a preferred trade across many sell-side desks.

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

SPFRPO10Fly201224
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EGB spreads to Bunds 0.5bp to 1.5bp wider on the day, with OATs under the most pressure.

  • Weakness in equities playing into the widening theme intraday.
  • Elsewhere, French PM Bayrou wants to name a cabinet over the weekend/by Christmas at the very latest. Bayrou also aims to formalise a Budget by around mid-February, although he conceded that he is “not sure we’ll get there.” Continued fiscal uncertainty is set to limit any relief rallies in OATs and is weighing on French paper early today.
  • OAT/Bunds last ~82.5bp, around the middle of the 75.5-88.4bp range witnessed month-to-date (based on closes).
  • The rebound from cycle lows in the SPGB/OAT/Bund fly has also stalled, last -45.3bp, trading in a -55.0bp to -41.8bp range month-to-date (based on closes).
  • Iberian longs vs. OATs remain a preferred trade across many sell-side desks.

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

SPFRPO10Fly201224