French political dysfunction is now the dominant driver of European sovereign bond stress, according to a cluster of recently published research arguing that the France-Germany 10Y spread has further to widen.
Several independent research notes point to the same catalysts: street protests, a fragmented parliament unable to pass real fiscal consolidation, budget amendments that loosened rather than tightened spending, and an imminent sovereign rating review. One analysis targets a move in the OAT-Bund spread toward 158bp, above the post-debt-crisis high of 147bp. French bonds, by one account, have now underperformed even Greece. A longer-run view argues stabilising French debt would require 4–5% of GDP in consolidation — politically near-impossible — with a potential Le Pen presidency clashing with Brussels as a tail risk. Italian spreads are flagged as collateral damage.
On core German Bunds, the research consensus splits. One camp sees structural upward pressure on yields from higher neutral rates and underpriced risk. A contrarian thread argues Bunds are a buy if inflation cools, with one forecast putting the 10-year at 3.25% by end-2026.