French, Italian bond spreads fall as Democratic sweep eases geopolitical concerns
TLT•French and Italian government bond yields fell on Wednesday, narrowing their spreads over German Bunds as investors bet Democratic control of Congress could ease geopolitical tensions. The French spread narrowed 10 basis points to 151.8, while Italy’s fell 6.50 basis points to 105.80.
1. Spreads narrow
French and Italian government bond spreads over German Bunds tightened on Wednesday as investors bet Democratic control of the US Congress could ease geopolitical tensions and support risk sentiment. French yields fell 11 basis points to 4.82%, narrowing the spread by 10 basis points to 151.8 basis points. Italian yields dropped 9 basis points to 4.36%, and the spread fell 6.50 basis points to 105.80, its lowest level since October 21.
2. Yields and inflation
German 10-year yields were down 2 basis points at 3.29%, tracking a 3-basis-point fall in US 10-year Treasury yields to 4.92%. A sharp fall in energy prices raised hopes that central banks may face less pressure to raise rates further. Euro zone inflation rose to 4% in October from 3.8% a month earlier, while core inflation held at 2.5%, both in line with expectations.
3. Investor outlook
Allianz Global Investors fixed income specialist Massimiliano Maxia said risk appetite was rising as investors bet a Democratic victory could support a more stable global backdrop, and said French and Italian debt were among the main beneficiaries of a bond recovery. The European Central Bank kept rates steady last week, after raising them twice so far this year.
