EU debt selloff overdone, Ukraine still key risk, says UBS
TLT•UBS says the widening in the 10-year EU-Bund spread to nearly 60 basis points from 39 in September has gone too far. It expects some of the widening to reverse, while citing a potential $30-$35 billion funding gap for Ukraine in 2027 as a medium-term risk.
1. EU-Bund spread widens
A flight into safer German debt, concerns over future Ukraine funding, France and negotiations over the EU’s long-term budget have pushed the 10-year EU-Bund spread to nearly 60 basis points from 39 in September.
2. UBS sees reversal
UBS says EU funding risks remain limited, citing the Commission’s unchanged 180-billion-euro issuance target for 2026 and sizeable liquidity buffers. The bank says existing programmes appear sufficient for Ukraine in 2026, but IMF estimates point to a $30-$35 billion funding gap in 2027. Strategists Annalaura Capuano and Reinout De Bock expect some of the recent spread widening to reverse, saying it appears excessive relative to fundamentals.
