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OAT: Goldman: OATs Brush Off ‘No Confidence’ Vote, Limited Compression Room

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CEEMEAEurozoneFranceBulletMarketsFixed Income Bullets

Goldman Sachs note that “following the vote of no confidence and the subsequent resignation of PM Barnier, OATs have largely returned to their early November levels.”

  • They outline 3 main drivers for this:
  • “Markets and consensus likely expected a smaller deficit consolidation than implied by the stated government objective of 5%.”
  • “With a very strong backdrop for sovereign credit more broadly, OATs have still underperformed Southern European peers.”
  • “The uncertainty generated by the fall of the Barnier government may be more manageable for markets than that in the wake of the parliamentary elections, amid a narrow range of possible policy outcomes.”
  • They note that “with catalysts for a widening behind us, we have closed our OAT/Bund widening recommendation.”
  • Further out, they see “limited upside for OATs from current levels. As we head into 2025, we expect the issuance backdrop to be challenging. We note that French sovereign debt strongly relies on foreign demand which could waver if political uncertainty remains elevated. As a result, we continue to expect the OAT/Bund spread to be volatile and forecast no additional compression through 2025.”
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Goldman Sachs note that “following the vote of no confidence and the subsequent resignation of PM Barnier, OATs have largely returned to their early November levels.”

  • They outline 3 main drivers for this:
  • “Markets and consensus likely expected a smaller deficit consolidation than implied by the stated government objective of 5%.”
  • “With a very strong backdrop for sovereign credit more broadly, OATs have still underperformed Southern European peers.”
  • “The uncertainty generated by the fall of the Barnier government may be more manageable for markets than that in the wake of the parliamentary elections, amid a narrow range of possible policy outcomes.”
  • They note that “with catalysts for a widening behind us, we have closed our OAT/Bund widening recommendation.”
  • Further out, they see “limited upside for OATs from current levels. As we head into 2025, we expect the issuance backdrop to be challenging. We note that French sovereign debt strongly relies on foreign demand which could waver if political uncertainty remains elevated. As a result, we continue to expect the OAT/Bund spread to be volatile and forecast no additional compression through 2025.”