J.P.Morgan: Too Early To Fade Spread Widening

J.P.Morgan write “after the sharp widening this week we believe French spreads are already pricing a high probability of scenarios somewhere between a Le Pen RN outright or relative majority government in cohabitation, which seems reasonable to modestly cheap.”

• “However, given the heighted uncertainty we believe that the market will continue to price an excessive risk-premia in spreads till there is clarity on the outcome.”
• “We, therefore, believe it is too early to fade the recent widening.”
• “Our bias will be to start scaling into France overweight exposure around 70bp level in the 10Y France-Germany spread, under the assumption of no new surprising developments.”
• “On the French credit curve, we still believe that the 10Y point will remain the underperformer in a widening move.”