Macron victory narrows OAT‑Bund spreads and lifts EUR
Following the French runoff, EURUSD advanced and OAT‑Bund spreads tightened as political tail risk faded. We reduced downside EUR hedges, added European cyclicals, and kept optionality for reform delivery risk.
With the centrist win confirmed, markets priced out the immediate risk of Eurozone fragmentation from a populist outcome. EURUSD moved higher, approaching the 1.10 area, while French sovereign spreads compressed meaningfully. European equities, particularly financials and domestically oriented names, responded to reduced risk premia.
The relief rally reflected expectations for structural reforms, labor market flexibility, and EU cooperation. Bank funding costs eased as political uncertainty diminished. Still, the medium‑term growth path remained tied to implementation timelines and external demand, keeping the euro’s advance orderly rather than explosive.
Positioning indicators suggested under‑ownership of European risk, providing scope for inflows. Options skew normalized as investors unwound tail hedges and recalibrated ranges. We viewed the move as a repricing of risk rather than a new trend, pending evidence of policy follow‑through and earnings traction.
We trimmed EUR downside hedges on euro assets, added selectively to European cyclicals, and maintained call spreads to participate while capping exposure. In fixed income we kept a modest bias to semi‑cores and high‑quality corporates, expecting ECB normalization to remain gradual and data‑dependent.
- Political tail risk receded in France
- EUR and OATs responded positively
- We reduced EUR hedges and added select cyclicals
