European Rates Strategy: French Political Risk: Implications for SSAs and covereds

Research evidence excerpt

European Rates Strategy: French Political Risk: Implications for SSAs and covereds

Global Research

10 July 2026ab

European Rates Strategy Interest Rates

Europe including UKFrench Political Risk: Implications for SSAs and

covereds Annalaura Capuano

Strategist

annalaura.capuano@ubs.com

+44-20-7567 1879

A potential deterioration in sentiment towards French risk would likely have Reinout De Bock

the largest impact on OATs, with EU bonds potentially attracting the bulk of Strategist

diversification flows as investors seek to reduce French sovereign exposure. reinout.de-bock@ubs.com

+44-20-7567 0152

The EU is now better positioned to absorb such flows, having established itself as a

liquid, frequent and predictable issuer, supported by ongoing issuance

programmes beyond NGEU.

Within the French agency space, spreads could widen, although moves are likely

to lag and be less pronounced than those of OATs.

The scope for additional downgrade-driven regulatory selling appears

limited, as many French agencies have already absorbed the main consequences

of previous rating downgrades through higher RWAs and reduced HQLA eligibility.

French covered bonds remain the most resilient French credit asset class in

our view. They have historically outperformed OATs and agencies during periods of

market volatility and benefit from meaningful rating buffers against sovereign

downgrades.

Recent investor discussions have increasingly focused on the French political outlook and

its implications for SSA markets. The approaching French presidential election and the

latest developments surrounding Marine Le Pen's court case have reignited concerns

about French political risk.

EU vs OAT flows

A key question among clients is whether rising concerns over French risk would generate