France. Political uncertainty is once again taking center stage in Europe and Japan, with implications for sovereign bond markets and fiscal policy credibility. In France, Prime Minister François Bayrou faces a crucial vote of confidence next week after unveiling the government’s 2026 budget. The plan aims to reduce the fiscal deficit by 0.5 percentage points of GDP. With every opposition bloc signaling it will vote against the measure, Bayrou is widely expected to lose the vote. The key question is how President Emmanuel Macron will respond. He could pursue the path of least resistance by appointing a new prime minister, a move that would help to contain near-term political risk. But if Macron unexpectedly opts to call another snap legislative election, the outcome could rattle French bond markets. A stronger showing for the far-right National Rally, which advocates more expansive fiscal spending, would likely force OATs (French government bonds) to price in higher risk premiums.
