Rates: Heavy on "Stats," Light on Movement – OAT/Bund Spread Crumbles to 58 Basis Points

• What Happened in the Bond Markets This Week?
• How Did European PMIs Impact Trading?
• What’s the Deal with UK Gilts and US Treasuries?
• Why Did French OATs Outperform?
• What’s Next for Bond Traders?
• FAQs

Bond markets had a tense week, with Japanese Treasuries crashing early on and struggling to recover. French OATs emerged as the week’s winners, tightening sharply against German Bunds. Meanwhile, macroeconomic data dominated headlines, from revised US growth figures to mixed PMI readings in Europe. The BTCC team breaks down the action—no fluff, just the facts.

What Happened in the Bond Markets This Week?

The bond markets were anything but boring this week. Monday and Tuesday saw a full-blown crash in Japanese Government Bonds (JGBs), and despite a mid-week rebound attempt, the recovery fizzled by Friday. The 10-year JGB yield jumped to 2.256%, up 7.5 bps for the week, while the 30-year stabilized around 3.65%—still a 16 bps weekly surge. The 40-year JGB, which briefly touched 4.20%, closed at 3.944%, up 14 bps. Geopolitical noise took a backseat as traders focused on macro data, including an upward revision to US GDP growth (now at 4.4%) and steady inflation at 2.8% (both headline and core).

How Did European PMIs Impact Trading?

Friday was all about PMIs—those forward-looking economic health checks. The Eurozone’s composite PMI held steady at 51.5 (13 straight months above 50), but France dragged the mood down. Its PMI dropped to 48.6 from 50, signaling renewed private-sector contraction. Germany, however, posted a 1.2-point rise to 52.5, beating expectations. The reaction? Italian BTPs held firm, but French OATs stole the show—yields fell another 3 bps to 3.484%, while the OAT/Bund spread collapsed by 9 bps to just 58 bps. The German 10-year yield, for context, ROSE 2 bps to 2.903% (up 6 bps weekly).

What’s the Deal with UK Gilts and US Treasuries?

UK retail sales surprised with a 0.4% December uptick, but Gilts still ended the week poorly—yields rose 3.3 bps to 4.508%. Stateside, Treasury markets barely budged: the 30-year flatlined at 4.845%, the 10-year at 4.248%, and the 2-year dipped 0.5 bps to 3.609%. Traders shrugged off S&P Global’s US PMIs (composite at 52.8, services at 52.5, manufacturing at 51.9—all roughly in line). The University of Michigan’s consumer sentiment index, though, jumped to 56.4 from December’s 52.9, defying Jefferies’ modest 54.5 forecast.

Why Did French OATs Outperform?

Simple: political stability. With no-surprise rejections of no-confidence votes, France’s debt became a SAFE haven relative to Bunds. The BTCC analytics team notes that OATs have now clawed back most of their 2025 risk premium. "When Paris avoids drama, the spread eats Bund dust," quipped one trader. Historical context? The OAT/Bund spread averaged 45 bps pre-energy crisis—so there’s room to tighten further.

What’s Next for Bond Traders?

All eyes turn to next week’s ECB meeting and US PCE data. If Eurozone growth stays patchy, the spread could test 50 bps. But as one BTCC strategist warned, "Don’t fight the Fed—their ‘higher for longer’ MANTRA still echoes." Pro tip: Watch for Japanese lifers re-entering JGBs after this week’s carnage.

FAQs

What caused the JGB crash?

BoJ policy uncertainty triggered a violent repricing, especially in long-dated bonds. The 40-year yield swung wildly between 4.20% and 3.944% in a single session.

How reliable are flash PMIs?

They’re directionally useful but often revised. Today’s French services PMI could easily flip back above 50 next month.

Is the OAT/Bund spread trade over?

Not yet—but at 58 bps, you’re picking up pennies in front of a potential ECB rate-cut steamroller.