Well here we are, one day on following a setback for European populism, and as noted this morning, the “never Geert” rally pushed up both the single currency and regional stocks overnight in a truly impressive fit of optimism (although the equity rally has faded a bit since)…
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In light of recent events – and considering OATs quickly gave back gains – we thought a bit of sobriety might be in order.
After all, the French elections haven’t happened yet and as such, “Le Pen risk” is hardly off the table.
We’ve spent a considerable amount of time in these pages discussing the extent to which € credit markets seem to be woefully mispriced ahead of 2017’s biggest (scheduled) political event. Indeed, the premium the market’s giving you on French IG versus non-French IG is pitifully thin and as far as French junk versus non-French high yield is concerned, there’s virtually no compensation for redenomination risk at all.
In a note dated Wednesday (4:42 EST, to be exact), Goldman lays out what to expect on the off chance Le Pen manages to emerge victorious. Below, find the bullet points.
Via Goldman
And speaking of “last seen during the sovereign debt crisis” and “mispriced” markets, don’t forget just how sanguine € credit truly is versus 2011/2012 despite the outsized representation of French credit risk at the index level…
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