France: markets on the campaign trail
31 AUG, 2026
The new political season has not yet begun, and the final lineup for the presidential elections is far from settled, but the election campaign has already started in France — and not only on television sets and social media, but also in the financial markets. The uncertainty surrounding approval of the next budget is serving as a dress rehearsal for the big event of May 2027, and it is already triggering a marked positioning by investors.
In interest rates, there are moments of tension. The French 10-year bond has crossed the 4% threshold and is currently trading at levels not seen since 2008. Although this move is part of a broader global rise in interest rates, what is happening in France is no less real for that. The spread with the German 10-year bond (a risk indicator traditionally tracked in sovereign debt markets) has returned to the highs reached in 2024 following the dissolution of the National Assembly. Moreover, of the 21 eurozone countries, none — not even Greece or Bulgaria — borrows as expensively as France at this maturity.
This distrust from fixed-income markets is being felt in stock market behavior. Since the start of the year, the CAC 40 has lagged behind European equity indices as a whole, rising just 4.8%, compared with 13.3% for the Eurostoxx. It is tempting to attribute this underperformance solely to composition bias, given that Paris's flagship index is effectively weighed down by its exposure to luxury and the automotive sector, both hit hard this year too — but a look at the other French stock indices disproves this theory. The CAC Small (the French small-cap index) is also lagging well behind its European counterpart.
This underperformance is not accidental. Numerous market intermediaries currently point to growing interest among international investors in products that allow them to bet against French equities. Some hedge funds even admit they are steering clear of certain stocks simply because they are French, even though their teams consider them to be of high quality.
This investor skepticism toward French assets clearly reflects uncertainties around upcoming political milestones — the budget vote first, then the presidential elections — but it also conveys legitimate concern about the country's economy:
- France is expected to once again rank in 2026 as the eurozone country with the worst public deficit
- It has one of the highest debt ratios, surpassed only by Italy and Greece
- The unemployment rate, at 8.2%, is among the highest in the eurozone and has returned to 2020 levels, while the eurozone as a whole remains at historic lows
- The latest activity indicators, although they have picked up slightly, remain in contraction territory, while the rest of the eurozone, including Germany, is expanding
- GDP growth in the second quarter was revised down to 0% after a 0.2% contraction in the first, putting the country on the verge of a technical recession
So, in both equity and fixed-income markets, investors are not merely taking shelter from a period of political uncertainty — they are beginning to position themselves for a worrying economic and financial situation, one for which the upcoming presidential elections are shaping up to be a last chance.
