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MACRO ANALYSIS: Foreign Demand For OATs Will Be Closely Watched In 2025 (2/2)

MACRO ANALYSIS
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The aftermath of last week’s no-confidence vote has kept political uncertainty heightened in France, but also increased the risk of further fiscal slippage with the 2025 budget now in flux. 

  • This will likely require higher 2025 OAT issuance than initially assumed in Autumn 2024 (even as sources suggest France is sticking to its plan to borrow E300bln in 2025 for now), and by extension maintain the need for resilient foreign demand into next year.
  • Although French government bond auctions since the snap legislative election announcement have generally been well digested, there are indications of weakening foreign demand for OATs in some areas of the market.
  • For example, Japan’s monthly balance of payments data shows that Japanese investors sold JPY2.9 trillion of French paper between June and October (however, this only corresponds to ~E17-18bln, and may also reflect improved yield pickup for JGBs given the Bank of Japan’s monetary policy stance).
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The aftermath of last week’s no-confidence vote has kept political uncertainty heightened in France, but also increased the risk of further fiscal slippage with the 2025 budget now in flux. 

  • This will likely require higher 2025 OAT issuance than initially assumed in Autumn 2024 (even as sources suggest France is sticking to its plan to borrow E300bln in 2025 for now), and by extension maintain the need for resilient foreign demand into next year.
  • Although French government bond auctions since the snap legislative election announcement have generally been well digested, there are indications of weakening foreign demand for OATs in some areas of the market.
  • For example, Japan’s monthly balance of payments data shows that Japanese investors sold JPY2.9 trillion of French paper between June and October (however, this only corresponds to ~E17-18bln, and may also reflect improved yield pickup for JGBs given the Bank of Japan’s monetary policy stance).