European government bonds have had a tumultuous week, with risk trading poorly across the board due to a duration selloff and an influx of supply weighing on country spreads. The German Bund, in particular, saw significant volatility, widening by as much as 8 basis points (bps) intraday before recouping half of those losses in the afternoon. This was largely due to a successful auction and support from buyers at the 2.77% yield mark, which proved to be a key level for buying interest.

The steepening of curves in the front end of the curve was also notable, with the 2-10 year spread in Germany increasing by 7 bps and almost 9 bps in Italy. This suggests that investors are becoming more optimistic about the short-term outlook for these markets, despite the geopolitical tensions and uncertainties still present in the global landscape.

Looking ahead to next week, Germany will auction off €9 billion worth of 2-year and 7-year paper, which could provide further insight into investor sentiment. Additionally, the usual month-end extensions are expected on Tuesday, which may impact bond prices and yields.

Overall, the performance of European government bonds this week highlights the complex nature of the current market environment, where both geopolitical risks and monetary policy considerations are influencing investor behavior. As always, it’s important to stay vigilant and adapt to changing conditions in order to navigate these markets successfully.