The kick-off in the 2027 French Presidential campaign and the associated fiscal indiscipline is already being felt in French assets. With the OAT Bund 10-year spread back at YTD highs, along with other signs of stress in the sovereign space, it’s clear the market is worried about where things could go in the coming months.
The political problem is becoming harder to distinguish from the fiscal one that the country also has to contend with. The latest TV debate between presidential candidates presented fiscal proposals that ranged from implausible to downright bizarre (Far-left candidate Jean-Luc Mélenchon said “to just take the bonds, and burn them.”)
From where we stand, there is plenty of risk premium left to be built into French rates, and opportunities are emerging.