The recent, severe flattening of the 10-30 year EUR swap curve was exacerbated by the mass unwinding of a crowded “steepener” trade. This pre-existing heavy positioning caused a more aggressive reaction (a higher beta) to rising terminal rate expectations than observed in previous hiking cycles, leading to a 50 basis point round trip.
The Euro SSA (Sovereign, Supranational, and Agency) market appears expensive primarily due to France's idiosyncratic underperformance. When French debt is excluded from valuation models, the rest of the SSA sector no longer seems overvalued. This suggests France's political risk story has limited spillover effect on other high-quality European issuers.
The European Union's debt is undergoing a structural shift in market perception. During recent volatility, EU bonds demonstrated resilience akin to core government bonds (like Austria or Finland) rather than typical supranational assets. This transition suggests a long-term tightening trend as investors increasingly treat EU debt as a safe-haven asset.
Norges Bank's commitment to holding interest rates higher for longer is driven by a fundamental change in its economic outlook: an upward revision of the neutral interest rate. This structural shift, rather than a purely cyclical response to inflation, signals a more persistent hawkish policy stance and is a key factor driving other developed market central banks.