Bond, French bond: licence to widen
French bond spreads have nearly doubled since early September. Large deficits, political gridlock, and rising interest costs, are self-reinforcing. A Le Pen presidency with a hung Parliament next year is our base case, but structural challenges, not concerns about Le Pen per se, are the driver of market worries. If spreads widen further, ECB intervention may then come into view.
Duration: 1 Min
Date: 26 Oct 2026
Key Takeaways
Our long-held view that France is ‘periphery’, not ‘core’, is playing out. Last week, 10-year French OAT yields rose above 5%, the highest since 2002. The spread over Bunds doubled from early September to above 170bps, the widest since 2011, although they are at 155bps at the time of writing, as Moody’s didn’t downgrade France’s debt rating.
Until mid-October, spreads tracked prediction market odds of a Marine le Pen win in May 2027’s election. But spreads continued to widen in recent weeks even as Le Pen’s odds levelled off.
Instead, a self-reinforcing ‘ratchet’ has been at work, with large deficits, political gridlock, and rising interest costs feeding off each other.
Our base case is a Le Pen presidency and a hung National Assembly. The risks to that are the cordon sanitaire locking out Le Pen, or alternatively National Rally (RN) winning in Parliament too.
Gridlock would limit the scope for a populist fiscal expansion. But it also makes consolidation unlikely.
While there may be scope for more pressure on spreads, we think the ECB’s Transmission Protection Instrument (TPI) comes into play at spreads of 200–250bps.
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