Aberdeen: OAT spreads elevated for months to come

Aberdeen: OAT spreads elevated for months to come

September 9, 2025

Fixed Income Politics France

Alex Everett, Senior Investment Manager at Aberdeen, comments on the fall of the French government and its effect on French government bonds:

'The fall of the Bayrou government had become an inevitability for markets, and French government bonds, known as OATs (Obligations assimilables du Trésor) had already moved wider relative to Bunds and BTPs. The real test is how President Macron responds now. The least bad option is to appoint yet another Prime Minister to try to break the political and economic impasse.

Yesterday’s vote shows that the Assemblée Nationale remains as divided as ever. Meanwhile, the financial imperative is to pass a prudent, deficit-reducing budget, however unlikely that seems. At this stage, even a small reduction would be better than nothing. Confidence in the French economy is already at a low ebb, and the longer this situation continues, the greater the problem becomes.

It is clear that France’s political quagmire will not be resolved this year, and perhaps not until the 2027 Presidential Election. This will likely keep OAT spreads elevated – at least around current levels – for months to come. We remain short OATs against peers.'

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