OAT: Commerzbank Wary Of Further Widening Vs. Bunds & BTPs, See Value Vs. OLOs
Oct-10 08:27
In light of this week’s OAT moves Commerzbank note that “the orderly OAT spread widening on the back of the turmoil in France suggests that the market was already braced for difficulties”.
- They expect “further spread pressure ahead of year-end until a budget compromise can be reached”.
- Commerzbank warn that “this could see OAT/Bunds increase above 90bp, as the fiscal consolidation path under a centre-left PM would probably be less ambitious, while an S&P rating downgrade in November and record supply loom large”.
- Still, they suggest that “the domestic bid, in particular from banks, and foreign buying at historically cheap spreads should prevent further widening above 100bp”.
- They also believe the 10s30s OAT curve looks “set to resume its steepening trend, beyond the 90bp mark”.
- In wider cross-market terms Commerzbank continue to “expect full convergence in BTP/OAT spreads. Pressure on ultra-long OATs should be compounded by issuance dynamics, as about 25% of OAT issuance is conducted in tenors above 10s, compared with only about 15% for BTPs”.
- They believe that “OATs look increasingly attractive against OLOs, which have lagged the latest spread widening in France. As the deficit dynamics in Belgium look similarly concerning and expect OLOs to underperform OATs in coming weeks”.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
EGB SYNDICATION: Luxembourg New 10-Year Sep-35 LGB: Update
Sep-10 08:27
- Revised guidance MS+32bps area (was MS+35bps area)
- Size: EUR Benchmark (MNI pencil in a transaction size of E1.00-1.75bln)
- Books in excess of E14bln ex JLM interest
- Maturity: 17-September-2035
- Settlement: 17-September-2025 (T+5)
- ISIN: LU3182454440
- Bookrunners: BofA / BCEE / CACIB / DB / SG (B&D)
- Timing: Books open, today's business
From market source / MNI colour
EURIBOR OPTIONS: ERU5 98.00/98.06 Call Spread Lifted
Sep-10 08:05
ERU5 98.00/98.06 call spread paper paid 0.25 on 6.5K.
FRANCE: OAT/Bund Spread Widens; New PM Lecornu Likely To Face Similar Challenges
Sep-10 08:05
The 10-year OAT/Bund spread has widened 1bp to 82bps this morning, underperforming EGB peers. Markets are digesting President Macron’s appointment of former defence minister Sebastien Lecornu to the PM post. Initial reactions from opposition parties suggest Lecornu will face many of the same challenges as his predecessors in passing a budget. This keeps French political and fiscal risks heightened, limiting meaningful narrowing risks for OATs.
- Olivier Faure, Socialist party leader, has noted that “There is a lack of understanding because the French were hoping for change, and deep down, Sébastien Lecornu at Matignon is Emmanuel Macron at Matignon; they are the same people” (source) A reminder that former PM Bayrou managed to push his 2025 budget through the National Assembly only because he received tacit support from the Socialists. This tacit support ended following Bayrou’s 2026 budget proposals.
- Meanwhile, RN’s Le Pen has said that Lecornu will be judged “based on his record, his actions, his policy choices in giving France a budget, and this against our red lines" (source),
- The far left LFI party has said that it will issue a symbolic censure motion against Lecornu’s government, and has unsurprisingly said that it will “not participate in a grand coalition”
- A reminder that a Bloomberg benchmark 10-year OAT roll yesterday has skewed OAT/EGB spreads wider by ~7bps this week.
Trending Top
Jan-30 21:43
Jan-30 21:11
