Short 5-30 OAT box against Bund

As political immediate risk is behind us in France, the OAT curve is too steep relative to Germany in our opinion, various measures of relative steepness currently trade at the top of their recent range. France could finally keep on with a centrist / market friendly coalition government with some concession made to far-right RN to secure survival and keep relatively free hands to adopt a sensible budget for 2025. This should help the French debt-to-GDP ratio to stabilize. More long-term challenges for the German economy will probably make policymakers and opinion reconsider aversion for public debt and support the closing of the gap between French and German debt ratios. We express this view in a 5-30y box (flattener OAT vs. steepener German curve) at 55bp. For a tactical play on a 3-month horizon, we target 48bp (stop @ 58,5bp). The negative carry of the position (-20bp on the horizon) should be more than compensated by the mark-to-market of the position as we see the risk-reward skewed towards the compression of the box.