European rates research is leaning hawkish, and one spread in particular keeps getting flagged: France's OAT over Germany's Bund.
Researchers argue Eurozone growth is surprising to the upside after a stretch of pessimism, with sticky prices and resilient nominal growth keeping upward pressure on 10-year Bund yields. The published consensus now leans toward two more ECB hikes to 3.00%, with money markets pricing even more — though analysts note Lagarde has signalled markets may be getting ahead of policymakers. A softer read comes from one thread pointing out that euro sovereign yields dipped on lower oil, a reminder the hawkish path depends on energy staying contained.
The louder warning is on France. Multiple research notes highlight the OAT/Bund spread near its widest since 2012 (around 96bp), driven by political uncertainty ahead of the 2027 election and unresolved budget questions. Some analysts add that even narrower OAT/JGB differentials likely won't tempt Japanese buyers given French fiscal fragility.
On credit, one camp sees European high yield supported by attractive all-in yields and short duration, but flags spread-widening risk if volatility returns.