France
France’s fiscal mess is far from over, but the bond vigilantes may have gotten ahead of themselves. We book profits on short OATs, eyeing another opportunity in early 2027 as election risks resurface. Meanwhile, French equities are too cheap to ignore. We tactically buy on depressed valuations.
Forced selling may be approaching a pause, but France’s fiscal and political adjustment has barely begun. Maintain an underweight in OATs and use relief rallies to reduce exposure. Contained contagion is reassuring for Europe; it is not a buy signal for France.
A world of political churn favors safe havens — buy yen, stay overweight US stocks, and avoid chasing the fragile rally in China.
Despite concerns about fiscal sustainability, a rise in term premia, and attacks on central bank independence, monetary policy remains the primary driver of bond markets. In our Q3 Review & Outlook, we update our views and identify opportunities in government bonds, short-term interest rate futures, global yield curves, inflation-linked bonds, and credit.