Global Rates: Sovereign spreads, euro area rate vol and UK rates into the Budget

Sovereign spreads in Europe have stabilized following a period of volatility driven by technical washouts and political noise, particularly in France. While German spreads have found a steady state around 140 basis points, the sensitivity of higher-debt sovereigns to yield movements suggests that acute technical pressures have largely faded, creating potential opportunities in peripheral markets like Italy. Rates volatility remains elevated but is expected to decline, with current market conditions favoring range-trading strategies over short gamma exposures. Meanwhile, the upcoming UK budget is anticipated to be fiscally neutral, with no significant fiscal risk premium currently priced into gilt markets. Yield movements in the UK continue to track global drivers and relative central bank policy expectations rather than idiosyncratic domestic fiscal concerns, keeping the 10-year gilt-bund spread at fair value.