European Rates – Less keen on carry, UK political noise but no signal

• Carry remains the name of the game for intervening spreads in the first half of 2026, although valuations have become even more expensive
• Geopolitical tensions and US policy uncertainty have led to caution on carry exposures due to crowded positioning and limited risk-adjusted returns
• Increasing demand for EU bonds and EGBs suggests a gradual diversification away from USD markets, with attractive yields in the 10-year and longer sectors for long-term investors

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