Le Spread is Back

Trading the French political fallout.

France is once again caught in a political storm. Prime Minister François Bayrou dramatically called a confidence vote for September 8th to push through his controversial €44bn austerity budget, aimed at shoring up state finances but deeply unpopular across the aisle.

This gambit comes amid overwhelming opposition: major parties from both the left and the far right have opposed the plan and pledged to vote it down, meaning Bayrou’s minority government is teetering on the brink of collapse. Adding to the pressure, a recent poll shows that 63% of French citizens support dissolving parliament and holding fresh elections.

The OAT-Bund 10yr spread has blown out again to 79bps, while EUR crosses have come under pressure. We feel the implications of the events to come over the next few weeks mean the situation could get worse, not better.