European country spreads saw notable tightening, with French OATs outperforming by 2 basis points (bp) and Italian BTPs tightening by 3bp against German Bunds in the 10-year space. Flow activity remained relatively muted, which isn’t surprising given the shortened U.S. trading session.

Are Country Spreads Reaching Sell Territory?

With 10-year OAT-Bund spreads at 68bp and BTP-Bund at 104bp, there’s increasing scrutiny from active investors. The OAT spread is currently at its tightest level since last September, a signal that we may be nearing sell territory.

Curve Dynamics: Defence Spending and Steepeners

Looking ahead, increased borrowing to finance Europe’s defense initiatives could ultimately support steeper yield curves. This structural shift in fiscal policy may influence long-term positioning across the EUR rates market.

Upcoming Supply: Key Auctions on the Radar

This week’s bond supply schedule is set to unfold as follows:

• Tuesday: German Schatz tap
• Wednesday: 10-year Bund tap
• Thursday: Medium-term OAT and Bonos auctions

These events will provide key insights into investor demand and could influence market direction in the near term.

With spreads at multi-month lows and fiscal dynamics shifting, the EUR rates market remains in focus. Investors should watch upcoming supply and policy signals closely as positioning dynamics evolve.