Rates spark bifurcated risk sentiment

Key arguments

• Risk sentiment is turning more optimistic, with French spreads tightening, the S&P 500 at new highs and Brent briefly below $100, though macro forces remain opposing and strained.
• Le Pen's fiscal consolidation plan was well received, tightening the 10y OAT/Bund spread almost 10bp towards 125bp, but relies on optimistic assumptions and hard-to-deliver measures.
• Prolonged election uncertainty and headline risks are likely to deter investors from French debt, and her plans may invite more attacks from opponents.
• Student unrest and union calls for nationwide strikes in early November show the public resistance any spending restraint will face, limiting durable spread relief.

Corresponding source evidence

1. On the positive side in the near term, it could also signal less resistance to the government’s current proposal for 2027, which targets a deficit of 5% rather than the 3.7% that Le Pen’s plan envisages. · 2027
2. On balance, we still see risks tilted towards a re-widening of spreads as we head closer to the elections and expect the spread to remain in the 125-150bp range for now rather than move lastingly lower.
3. However, we will see a few European Central Bank officials speaking, such as Piero Cipollone and Boris Vujcic, and in the US, the Federal Reserve will release the minutes of the September FOMC meeting.