Rates Weekly: Is the ECB already in the rate-hiking cycle?

EUR rates:Recap of the week:  The week was dominated by a sharp sell-off in EUR rates following hawkish ECB comments, which repriced the front end and pushed short- to mid-term yields higher. A US Treasury rally after a dovish FOMC meeting, offered some relief but was insufficient to counter the broader European sell-off. As a result, EUR curves experienced a bear flattening. French OATs slightly outperformed, with the 10Y OAT-Bund spread tightening modestly to 70 bps.Tactical view: The end-of-year sell-off is probably confirmed but it could be mitigated by a pushback from the ECB next week. We’re marginally long in Bunds to fade the sell-off.  We continue to prefer the German swap spread curve steepening bias. A range on 10Y OAT-Bund spread seems to have been reached between the risk of financing special bills on the draft budget (PLF) and relative political stability at 70–75 bp. We continue to expect limited tightening in peripheral spreads, supported by sustained investor demand and gradually improving fundamentals.Insights of the week: After FOMC decision, a full-fledged Fed backstop for markets and some fresh liquidity injections coming soon, supporting the T-bills market.US rates: Markets reacted favorably to the December Fed, but the front end mainly retraced to where it was a week ago.  Curve steepening progressed but still has some technical hurdles ahead.  We lay out our 2026 trade approach across sectors.