Rates Weekly : OAT curve retains some advantages for long term investors

EUR ratesRecap of the week:  Range trading in the 10Y Bund yield, which has struggled to reclaim levels above 2.80% observed in March. There is a slight inclination towards steepening, particularly evident in the 2Y-5Y and 2Y-10Y.  Regarding sovereign spreads, there are signs of renewed profit-taking on the BTP curve, which is now trading above the OAT.Insights of the week:  OAT curve retains some advantages for long term investors.Tactical view:  Tactically, we prefer limited duration exposure at current levels. The belly of the curve continues to offer better carry.  We see EUR 10s30s gradually moving towards 40bp by end 2026 but recommend hedging steepener positions tactically given short-term risks.US rates:We are reassessing our outlook on US 2-year yields. Initially, we expected a typical follow-the-Fed pattern, but Chris's inflation projections suggest we may have underestimated the impact of persistent inflation on short-term yields. As the Fed eases towards a 3% funds rate amid high inflation, we now believe 2-year yields might not drop below 3.25%. However, emerging political risks could further complicate this outlook.