BofA closes French bond trade after hitting 40bp target

Investing.com -- Bank of America closed its short position in OAT Nov35 versus long EU Dec35 after the trade reached its target of 40 basis points. The bank entered the position at 30 basis points on May 21.

French bonds cheapened 10 basis points versus EU Dec35 since late May. The bank said it expected French bonds to face pressure during summer months due to elevated net supply from June through August and the verdict in the Marine Le Pen case in early July.

OATs began to cheapen in June, with supply playing a role through mixed auctions for bonds under eight years. Two factors accelerated the cheapening from July: Le Pen's announcement that she will stand as presidential candidate and the collapse of the US-Iran ceasefire that created risk-off moves.

The rise in energy prices and long-dated US Treasury yields extended the widening in periphery spreads and cheapening in OATs versus EU over the last two weeks.

Short positioning in OAT futures has remained throughout August. Bank of America noted that for a more significant build-up to occur and for real money appetite in OATs to slow at current yield and spread valuations, there would need to be imminent risks that justify the negative carry of a short or underweight position in OATs.

The bank said the 2027 budgetary proposals will be key to watch. The next key dates relate to the political calendar at end of August, including a day organized by MEDEF on August 27. Moody's review of France's rating is due on October 23.

You May Also Be Interested In

• Stripe, Advent In Talks To Buy Paypal - WSJ
• Mosaic sets pricing for tender offers on up to $1.4B in debt
• Goldman Sachs sees China retail sales growth staying weak