French elections: a remake of 2017?

The next 20 and 27 June 2021 will be held simultaneously departmental and regional elections in France. For regions, the majority premium has two main consequences by promoting, but not guaranteeing, the emergence of a majority and by encouraging the merging of lists before the second round. The absence of regions held by LREM makes it unlikely incumbent presidents will be sanctionned . This could lead to a relative stability of the current majorities in regional councils. It is perilous to extrapolate local results at the national level, due to the huge diffence of turnout rates and the high level of uncertainty surrounding the 2022 presidential candidates. The widening of the OAT-Bund spreads in 2017 was based on the emergence of a “ Frexit ” risk, in a market context marked, prior to the election, by a significant long positioning of foreign accounts. To date, this positioning seems more neutral while investors will probably focus on other topics such as Fed Tapering, PEPP recalibration etc. However, as the campaign grows and the ECB moves away from the markets, it’s likely we will witness an underperformance of the OATs . However , like in 2017, any widening will be temporary .