Liberté, Égalité, Volatilité

An update on views and trades from our August note.

In late August, we published Le Spread is Back, citing notable risks to French-specific assets following PM Bayrou’s push to get his budget through. We wrote that we didn’t think he’d survive in the job for much longer, and six weeks later, we not only have a new PM, but one that announced his resignation earlier this week too.

Our long OAT/Bund 10yr spread call is profitable, as is the CDS play. Yet given the shift in dynamics (Lecornu’s tenure became the shortest in the history of the French Fifth Republic), we thought it prudent to share our updated thoughts from here.