French Bond Risk Rebounds: Pre-Le Pen Ouster Levels Revisited

As the political landscape in France continues to evolve, so does the risk perception of its bond market. After a period of uncertainty following the ouster threats against Marine Le Pen, French bond risk premiums have rebounded to levels not seen since before the crisis. Let's delve into the factors driving this shift and its implications for investors.

The French 10-year OAT-Bund spread, which reflects the risk premium investors demand for holding French paper, reached 81 basis points on Thursday, December 5, 2024. This is a significant decrease from the 12-year high of 90 basis points reached earlier in the week. The narrowing spread indicates that investors are more confident in the French economy's ability to manage its fiscal stability, despite the ongoing political uncertainty.

The relative calm in the French bond market can be attributed to several factors. Firstly, the French government's recent loss of a no-confidence vote has led to expectations of a new government being appointed soon. This expected change in leadership has reassured investors that the political situation may stabilize, at least in the short term.

Secondly, the belief that President Macron may propose a new prime minister better suited to working with opposing blocs has also contributed to the market's optimism. This potential change in leadership could facilitate a more cooperative political environment, making it easier for the government to pass a budget and address fiscal concerns.

The rebound in French bond risk premiums also reflects investors' confidence in the country's ability to manage its budget deficit. The European Union's deficit rules and the potential for a successful budget passage have helped mitigate investor concerns about the French government's fiscal stability.

However, it is essential to note that the political situation in France remains unpredictable. The threat of Marine Le Pen's presidential bid and the broader geopolitical tensions continue to weigh on investor sentiment. As such, the French bond market remains susceptible to shifts in risk perception, and investors should closely monitor the evolving political landscape and its impact on the country's fiscal stability.


In conclusion, the French bond market has witnessed a rebound in risk premiums, returning to levels not seen since before the Le Pen ouster threats. This shift is driven by expectations of a new government, the potential for a more cooperative political environment, and investor confidence in the country's ability to manage its fiscal stability. However, the ongoing political uncertainty and geopolitical tensions highlight the need for investors to remain vigilant and monitor the evolving situation closely.