The focus of the Eurozone bond market is currently on the yield spreads of French government bonds, known as OATs.
The OATs are considered vulnerable, especially after the recent political developments where President Emmanuel Macron called for snap elections. This has led to an increase in the 10-year OAT-Bund yield spread, reaching 77 basis points on Friday, the highest since 2017, and further widening to 79 basis points on Monday. This indicates a growing investor demand for higher returns on French government bonds due to perceived risks.
The greatest concern is that internal policies may disrupt the progress of reforms, result in fiscal deterioration, and unsettle relationships within the European Union. ECB is in no rush to step in.
