Weekly Euro area rates review

With the short week in the US, the rates market has been somewhat less volatile. US data have come in better than expectations, which led to the Treasury market's selling off c.10bp and underperforming the 10y Bund and Gilt by 5-7bp. EGB spreads have been broadly stable on the week, with peripheral spreads tightening a few bp at the 10y point. The more notable move in EGB spreads came in intra-periphery spreads, with further underperformance of 10y Spain vs Italy taking the spread to c.25bp from about flat in mid-July. 

10y constant maturity spreads of Italy and Spain vs Germany briefly reached 180/170bp at the end of June, due to Greece-related market turbulence. In early July, once signs of a possible resolution emerged, spreads quickly tightened c.40bp. Over the rest of Q3, Italian spreads have range traded and outperformed Spain, with 10y Italian and Spanish spreads currently standing at 135bp and 150bp on a constant-maturity basis. 

"We believe that towards the end of September/early October, these spreads will offer value to go long for Q4", says Barclays.