The European government bond market has been experiencing a significant steepening trend in recent days, with the 10-year German bond getting closer to 2.90% and Italian government bonds (IK/RX) closing 2 basis points richer than their previous close. This steepening of the curve has led to profit taking in 10-year steepeners, according to UBS’s Strategic and Tactical Trading desk.

The desk notes that hedge funds have been buying the back end of the curve, and dealers have started to see some profit taking in 10-year steepener. However, despite this profit taking, the desk believes that steepening could continue, particularly if rates richen further. The 15-year area was better offered all day by dealers, with demand from Euro real money investors continuing to support prices in this region.

In terms of country spreads, Italy has moved above 70% completion of its issuance program, leaving France and Germany behind. Unless real money investors start to take profits, the desk expects Italy to continue performing well versus Germany or France into the summer months.

The steepening of the European government bond curve could be a sign of things to come, as the market continues to price in expectations of rate hikes and a stronger economy. With the European Central Bank (ECB) set to wind down its quantitative easing program and potentially raise interest rates in the near future, the stage is set for further steepening of the curve.

However, it’s important to note that the bond market is subject to a wide range of factors, including economic growth, inflation expectations, and central bank policy. As such, any predictions or forecasts should be taken with a grain of salt, and investors should always conduct thorough research and analysis before making any investment decisions.