France to Issue New Long-Term Bonds Soon, Yield Curve Steepens at the Long End
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⑴ The steepening movement at the long end of the yield curve on Monday appeared rather unusual. In retrospect, the reason lies in the market just learning that France will authorize the issuance of a new OAT bond maturing in May 2057.⑵ This announcement was entirely expected, and with the authorization confirmed, especially as France's long-term bonds are getting some breathing room.⑶ Specifically, the yield on France's 30-year government bond fell by 1.5 basis points that day, performing best among core sovereign bonds (tied with Belgium).⑷ Spain followed closely behind, but German and Italian bonds performed poorly, with yields lagging by 0.5 basis points respectively.⑸ Investors seem to be reducing their holdings of some Italian government bonds to make room for the upcoming issuance of France's new long-term OAT bond, and the France/Italy bond trading strategy remains very popular at present.⑹ Meanwhile, the yield spreads between 10-year and 30-year government bonds in both Germany and France narrowed by 0.5 basis points, resulting in a flattening of the curve.
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