UBP says French OAT-Bund spread widening weighs on European assets
TLT•UBP said the 10-year OAT-Bund spread widened to 150 basis points from 85 in early September and kept zero direct French government debt exposure in euro mandates. The euro also weakened, while weak payrolls cut implied odds of an October Fed rate move from 70% to below 20%.
1. French spread pressure
UBP said European assets underperformed as France drove spread stress, with the 10-year OAT-Bund spread widening to 150 basis points from 85 in early September. The bank kept zero direct French government debt exposure in euro mandates, citing limited political will to address deficits and debt. Treasuries retraced after the US 10-year yield touched 5.34% and the 30-year reached 5.69%; EUR/USD slipped to just above 1.12 and EUR/CHF fell below 0.93.
