BONDS: Git/Bund Spread Consolidating after Failed Break Below 150bp

Gilt/Bunds has stuck to a ~151-160bp closing range over the last couple of weeks after the run of gilt outperformance stalled following the failed break below 150bp (note that some of the spread narrowing seen in early ’26 was driven by the benchmark roll in 10-Year Bunds).

• RV gilt overweights remain a favoured play across the sell-side in the wake of the UK Budget, with ongoing skew away from long end issuance, a ‘credible’ UK fiscal path (albeit backloaded) and Germany’s focus on fiscal loosening providing the key drivers.
• Still, the failure to close below round number support (150bp), higher gilt beta to Tsys and failure of the GBP short end to price more than 50bp of cuts through year-end have all contributed to the recent pullback in the spread.
• Note that the Sep ’23 closing low (150.93bp) also hled during the recent round of spread narrowing.
• Ongoing, swift deterioration in UK labour market conditions could refocus attention on the downside, while growth headwinds in Europe and/or disappointment when it comes to German fiscal spending could switch focus to the upside.
• The previously mentioned support cluster (150.93/150.00bp) present the initial downside target, while the year-to-date closing high (163.85bp) presents the initial upside goal.

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

Source: MNI - Market News/Bloomberg Finance L.P.