RATES WEEKLY: Higher US real yields here to stay?

EUR rates:Recap of the week: The first week of 2026 saw a record surge in supply met by a resilient bull-flattening in EUR curves, as 10y Bunds drifted toward 2.85% and 10y BTP-Bund spreads hit 2008 low. Geopolitical shifts in Venezuela and cooling inflation data fueled the duration bid, though late-week oil volatility nudged inflation swaps, while French OATs lagged on fiscal caution. In the UK, Gilts outpaced peers with 10y yields dropping to 4.40% as soft activity data and cooling price pressures accelerated bets on a second-quarter BoE rate cut.Tactical view: We’re marginally long on duration but we maintain our medium-term outlook for a gradual rise in Bund yields. We continue to favor a long-term steepening trend, but we expect that EUR 10s30s will experience volatility in the short term without a clear direction on Dutch PF transition. We continue to expect limited tightening in peripheral spreads, supported by sustained investor demand and gradually improving fundamentals.Insights of the week: Higher US real yields here to stay?US rates:We think the decline in the unemployment rate should create a minor bear flattening impulse within the larger steepening trend, even as rates trade well after today’s data.   We also look at real yields over a longer horizon and think there is an argument that they can stay elevated.