Despite significant volatility in ECB pricing, bond yields, and risk sentiment, German swap spreads have remained remarkably stable. This is because they no longer function as a primary risk-off instrument for investors and are instead influenced by technical factors like seasonal swap issuance patterns, limiting their movement.
The recent rise in UK 10-year and 30-year gilt yields to multi-year highs is not due to UK-specific fiscal concerns. Instead, the sell-off is primarily explained by global factors, particularly the strong correlation with and spillover from US Treasury yield movements, rather than a repricing of UK fiscal risk.
The historically strong relationship where the Euro area's 2s10s yield curve would flatten during a sell-off (bear flattening) has significantly weakened. Analysts now observe limited directionality, with the curve expected to remain choppy and range-bound in a bearish move, breaking a long-standing market heuristic.