Global Rates: Mixed themes in European rates – Euro area sovereign spreads and France, seasonality in DM rates, cross-currency basis update and UK rate markets

Euro area sovereign spreads, particularly in France, have experienced significant widening driven by technical factors and position liquidations rather than fundamental shifts in fiscal or political policy. While French spreads appear stretched relative to macroeconomic fundamentals, volatility remains elevated amid ongoing political uncertainty. Seasonal patterns in government bond returns show marked weakness in September and October across developed markets, though these trends often take a backseat to broader macro drivers. Cross-currency basis remains range-bound despite heightened rate volatility, with future movements likely influenced by Federal Reserve balance sheet dynamics and non-dollar issuance from hyperscalers. Regarding UK markets, the government’s long-term policy aspirations hold limited short-term relevance, as fiscal focus remains on maintaining headroom within existing rules ahead of the upcoming budget, with current yield levels appearing attractive for long-term investors.