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EGBS: French Results May Strengthen Case For Peripheral Spread Tighteners vs OAT

EGBS

The French second round legislative election result may strengthen calls for peripheral spread tighteners versus OATs.

  • Although the direction of travel for Spanish & Portuguese fiscal and sovereign credit ratings has already prompted analysts to recommend PGB/SPGB tighteners in recent weeks, the ~70bp yield premium in 10-year BTPs vs OATs may also prove attractive given the relative political stability in Italy versus France at the current juncture.
  • The ensuing political deadlock following yesterday’s results suggests limited scope for near-term improvements to the French fiscal situation, and the more prominent-than-expected leftist presence in the National Assembly may prompt negative revisions to analyst’s 2024 French budget deficit projections.
  • French 10-year yields are now +1bp versus Friday’s closing levels after opening around 4bps higher, allowing 10-year PGB/SPGB and BTP spreads to OATs to move off tightest intraday levels.

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