UniCredit: France - FJElite

Rising spreads: Persistent public deficits, rising refinancing costs and political uncertainty ahead of the 2027 presidential election have driven OAT spreads to multi-year highs and started weighing on the euro. The upcoming budget process, the forthcoming presidential election and the widely expected legislative elections are the main focal points for investors.

The 2027 budget: We expect the budget to pass via Article 49.3, with the RN abstaining on the ensuing no- confidence motion. While the resulting moderate consolidation should help keep OAT spreads broadly stable, uncertainty over the durability of fiscal consolidation and the post-election policy outlook is likely to keep risk premiums elevated, limiting the scope for a sustained EUR-USD recovery and potentially exacerbating any weakness driven by further dollar appreciation.

Next year’s elections: With the traditional Republican front showing signs of weakening, the probability of a Le Pen presidency appears higher than in previous electoral cycles. For markets, however, the crucial question is whether the next government can deliver durable fiscal consolidation and maintain alignment with the EU fiscal framework. Under a credible debt-reduction or debt-stabilisation strategy, OAT asset swap spreads could narrow to 60-100bp, with EUR-USD ranging from around 1.15-1.16. By contrast, a fiscally expansionary policy agenda involving confrontation with the EU could push spreads to 250-300bp and EUR- USD down to 1.05-1.10.