While the results of the European elections did not significantly change the balance of power in the European Parliament, the centre right demonstrated clear dominance.
The results by country however, created a shockwave – especially in France, with an unmistakable victory for the extreme-right Rassemblement National.
In response, President Emmanuel Macron announced the dissolution of the national assembly and early legislative elections will take place on June 30 and July 7.
There are four potential scenarios that could result from these upcoming elections, including the possibility of a “cohabitation” between Macron and a Prime Minister from the Rassemblement National. Other scenarios include a revival of the Renaissance party, a refocusing of pro-European parties, or cohabitation with a Union of the Left.
Nathalie Dezeure
These events are likely to redefine the political dynamics in the country. That said, it’s important to note that in previous cases of cohabitation, passage to Matignon was not a springboard for the Elysée – which could be one motive behind calling for early elections.
On the markets, we are already seeing a 5bp spread on the 10Y OAT-Bund at around 53bp at the opening this morning (June 10). With renewed volatility, we currently see an equilibrium level at 60bp for the 10Y OAT-Bund spread; this equilibrium is likely to change depending on further political developments.
These early general elections are a factor in the widening of spreads in general. However, we don't think that the current situation will lead us to a configuration similar to the 2017 presidential election, with spreads widening to around 80bp, for the time being.
Théophile Legrand
