IFR: Slightly negative OATs point to unwinds dictating price action

The early strength portrayed buying of France, although real money and overseas accounts won’t have been so active in futures trading before the European open, and the lack of a bid since are telling. At the same time, the unwind of the flight to quality in Bunds is obvious, where futures are down more than half a point, although so far they have yet to test the overnight low of 130.90, after coming close on the open with a low of 130.91.

Breaking through here, and running a round of sell stops in markets where the bid remains thin, is a risk especially as we near early New York trading – if it hasn’t already gone by then. Regarding France, the lack of a bid (as opposed to outright selling like in Bunds) is understandable given the election results, which point to a best-case of a hung parliament, resulting in fiscal policy gridlock at a time when the sovereign’s debt needs to be addressed