UniCredit: Navigating Challenging Fiscal Picture

UniCredit note that “the deterioration of French public finances since the outbreak of the COVID pandemic has been significant compared to that of its Eurozone peers. This increases the fiscal adjustment the French government will have to carry out by end-2027 and poses downside risks to its rating.”

• “While the 10-Year OAT-Bund spread has stabilized at 50bp, OATs have underperformed Austrian and Spanish govies recently.”
• “We think OATs will continue to underperform peers, although the room for a significant widening is limited given that the majority of OAT holders are not very sensitive to changes in ratings.”
• “The elevated liquidity of OATs and an improving picture for fixed-income markets, in light of depo rate cuts, will also be supporting factors.”