French IG credit shrugs off OAT drama, financials take hit
EWQ•Goldman said spillover from French sovereign-market stress to investment-grade corporate credit remains contained, with 27% of French non-financial IG bonds yielding less than similar-maturity OATs, the highest share since 2011. French-domiciled banks are trading wider than peers.
1. Corporate credit holds up
With the French-German government bond spread at 145 basis points on Friday, Goldman said spillover to French corporate credit was fairly contained. It said 27% of French non-financial investment-grade bonds were trading inside similar-maturity OATs, meaning they had lower yields—the most since 2011. Goldman said this suggested markets were distinguishing between sovereign and corporate risk.
2. Banks show more stress
French-domiciled banks were trading wider than peers, while Spanish- and German-domiciled banks remained significantly tighter than their respective peer groups. Goldman said financials can be the first credit-market segment to reflect sovereign concerns because of their domestic exposure and sensitivity to funding conditions. It recommended underweighting French financials, saying they could continue to underperform peers ahead of next year’s presidential election, but added that it saw a high hurdle for French senior bank spreads to reach levels seen among Italian and Spanish banks during the 2011-2012 sovereign crisis.
