European duration saw a significant sell-off on Wednesday, driven primarily by syndicated supply from Austria, Finland, and Cyprus. The improvement in risk sentiment following US President Trump’s speech had limited impact on duration, while country spreads rebounded by around 1.5 basis points in BTP-Bund. OATs continued to outperform, with a 1 basis point advantage over Bunds due to improved odds of passing a budget for this year.

On the desk, flows were dominated by buying in 5-year OATs and 7-year BTPs from various types of accounts. Meanwhile, selling on the back of the Cyprus syndication in GGBs was absorbed easily across the curve (10-year and 30-year) with the GGB-BTP spread stable for the day at -1 basis point (GGB 6/2035-BTP 2/2035).

Looking ahead, France will auction up to €13.5 billion worth of medium-term OATs on Thursday. With flows and price action in those auctions expected to be strong, the auction is likely to be successful.

Overall, the recent market developments highlight the ongoing volatility in European government bond markets, and the potential for duration and country spreads to fluctuate based on a range of factors. As investors continue to navigate these changes, staying informed about market trends and developments will be crucial for making informed investment decisions.