Overview

• The 10-year OAT yield rose to about 3.48% versus roughly 3.47% for Italy, a crossover not seen in around 15 years.
• The move followed Prime Minister François Bayrou’s lost confidence vote and resignation, which heightened political uncertainty that investors dislike.
• Fitch is scheduled to review France’s sovereign rating on Friday, and a downgrade is viewed as possible given the negative outlook.
• A cut to A+ could force some regulated funds and pension investors to sell French bonds, potentially pushing yields higher.
• The France–Germany 10-year spread widened to roughly 82 basis points as France contends with about €3.3 trillion in debt, while Italy’s government has pledged to curb its deficit toward 2.8% by 2026.