Rates: Heavy Pressure in the US as OAT/Bund Spread Drops to Just 63 Basis Points

• What’s Driving the US Economic Data?
• How Are Inflation and Unemployment Trends Shaping Up?
• Why Are Bond Markets Reacting Negatively?
• What’s Happening in European Rates?
• Is Eurozone Consumer Sentiment Improving?
• What’s the ECB’s Stance on Rates?
• Market Implications and Key Takeaways
• Frequently Asked Questions

The US economy shows mixed signals as GDP growth surprises to the upside while bond markets react with volatility. Meanwhile, European rates see divergent movements, with the OAT/Bund spread narrowing to a two-year low. Consumer confidence in the Eurozone edges higher, but the ECB remains cautious on rate cuts. Here’s a deep dive into the latest economic data and market reactions.

What’s Driving the US Economic Data?

The US GDP growth for Q3 2025 was revised upward for the fourth time, now standing at 4.4% (up from 4.3% previously). This reflects strong consumer spending, exports, and government expenditures. Q2 growth was confirmed at 3.8%, reinforcing the resilience of the US economy despite geopolitical tensions earlier in the year.

Consumer spending ROSE by 3.5% in Q3, matching December’s estimates. November 2025 saw household purchases increase by 0.5% month-on-month, mirroring October’s performance. However, household income growth slowed to 0.3% in November, slightly below expectations, likely due to the temporary government shutdown in October.

How Are Inflation and Unemployment Trends Shaping Up?

The PCE price index, the Fed’s preferred inflation gauge, rose 2.8% year-on-year in November—unchanged from October. Core PCE (excluding food and energy) also held steady at 2.8%. Monthly figures showed a 0.2% increase, aligning with forecasts.

Initial jobless claims edged up to 200,000 last week, below the expected 210,000. This suggests the labor market remains tight, though wage growth hasn’t kept pace with inflation concerns.

Why Are Bond Markets Reacting Negatively?

US Treasury yields climbed across the curve:

• 10-year yield: +2 bps to 4.271%
• 5-year yield: +3 bps to 3.861%
• 2-year yield: +2.3 bps to 3.62%
• 30-year yield: +0.5 bps to 4.882%

This upward pressure reflects investor skepticism about the sustainability of growth without triggering further Fed tightening.

What’s Happening in European Rates?

European bonds saw mixed movements:

• German Bunds: +0.6 bps to 2.884%
• UK Gilts: +2.7 bps to 4.486%
• French OATs: -2 bps to 3.515%
• Italian BTPs: -1.5 bps to 3.512%

The OAT/Bund spread tightened to just 63 bps—the lowest in two years—as French debt outperforms amid easing political risks.

Is Eurozone Consumer Sentiment Improving?

Eurozone consumer confidence rose by 0.8 points in January to -12.4, while the broader EU saw a similar uptick to -11.7. This suggests households are cautiously optimistic despite lingering inflation concerns.

What’s the ECB’s Stance on Rates?

The ECB’s December meeting minutes confirmed policymakers are in no rush to cut rates, with inflation still NEAR target levels. The central bank held its benchmark rate at 2%, while upgrading growth projections—a signal that monetary easing remains distant.

Market Implications and Key Takeaways

The divergence between US and European rate movements highlights differing growth trajectories. While the US faces bond market jitters, France’s narrowing spread with Germany suggests improved confidence in Eurozone cohesion. Investors should watch for:

• Fed signals on potential rate cuts
• Upcoming Eurozone inflation data
• Political developments affecting fiscal policies

Data sources: TradingView, ECB, US Bureau of Economic Analysis.