Deutsche Bank-Fixed Income Blog EGBs Relative Value Corner-118878040

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 14/11/2025 16:39:44 GMTDistributed on: 14/11/2025 16:39:44 GMT14 November 2025Deutsche BankResearch Global Rates Fixed Income Blog Date Ahead of today's broader risk-off move in markets, EGB spreads were enjoying another solid performance with both GDP-weighted and average EGB spreads vs Bund at record low levels for 2025. Our cross asset PCA shows that EGB spreads outperformed vs other risky assets during this risk-on move. In contrast to recent weeks, this outperformance was led by OATs. In fact, 10yr OAT/Bund is now back to levels last seen before PM Bayrou announced a confidence vote in late August. Despite this OATs' outperformance vs their peers, it would be wrong to conclude that the entire post August underperformance of OATs has now been erased. This is because if instead of OAT/Bund we look at the spread of OATs vs all other EGBs, only 50% of the post-August move has been retraced.In terms of drivers for this strong performance by OATs, as our twin deficit model shows, OAT/Bund is trading above the levels implied by fundamentals. This cheapness can be explained by the political uncertainty and can be seen as a risk premium. Therefore, although we have not reached the crucial phase of the budget process yet (see the detailed report by our Econ team), the market is reading "no news" as "good news", as is usually the case when the risk premium related to politics is high enough. Short covering is another potential explanation as the budget process is a lengthy one. We still see a lot of uncertainty regarding the 2026 budget, and from the current relatively tight levels of OAT/Bund the risk/reward looks better for wideners than tighteners. We maintain our BTP/OAT tightener.As far as today's re-widening move is concerned, this is in line with the broader risk-off move in markets. In Monday's FICOTD, we explained that a broader risk-off move could become the most likely trigger for a re-widening in EGB spreads and we assessed how this sensitivity has evolved lately. Today's moves so far are close to these betas, with a mild underperformance for EGB spreads which could be related to the strong performance over the past week.Ioannis SokosStrategist+44-20-754-75680Mingyue XinStrategist+44-20-754-10002Deutsche Bank AGIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.EGBs Relative Value Corner14 November 2025Fixed Income BlogPage 2Deutsche Bank AGFigure 1: Higher Bund yield & tighter EGB spreads22.024.026.028.030.032.034.036.038.065.067.069.071.073.075.077.079.081.083.085.010yr OAT/BundOAT/Bund vs AVG ex-OAT EGB spread (RHS)Source : Deutsche Bank, Bloomberg Finance LP14 November 2025Fixed Income BlogDeutsche Bank AGPage 3EGBs Recent MovesFigure 2: Recent moves in 10y EGB/Bund spreads-10.0-8.0-6.0-4.0-2.00.02.010y EGB Spreads - Recent Moves5d