There was no "air pocket" on our OATs at the opening bell on Monday: the prospect of a divided French Parliament was considered the most likely scenario - with no single party able to implement its own program - and this scenario has reassured OAT holders who had anticipated it.

But can France remain stuck in a comfortable status quo - where nothing much will happen between now and May 2027 - when our debt exceeds 3.150bn (5.5% budget impasse), and the EU and our creditors may lose patience with the reduction of our deficits.

This stalemate will force Emmanuel Macron to cohabit with an a priori hostile Assembly during the last three years of his second term.

"The next government will be less willing and less able to reduce France's budget deficit than the outgoing government," worries Jack Allen-Reynolds, economist at Capital Economics.

If our OATs are deteriorating this evening, it's not for these purely 'domestic' reasons, but because they are caught up in a vast downward movement, quite surprisingly brutal in the case of Bunds, which are suffering one of their worst falls of the year, with a yield that is symmetrically tightening by +11.5pts to 2.6030%.
The Bunds' fall appears somewhat paradoxical, given that Germany's inflation rate is expected to come in at +2.2% in June, according to Destatis' preliminary estimate, after +2.4% the previous month.

Inflation excluding food (+1.1%) and energy (-2.1%), often referred to as core inflation, is expected to come in at +2.9% for the past month, down 0.1 points on May.

Our OATs are up +5pts to 3.3510%, but we could be delighted to see the spread with the Bund contract by -6pts (to +75pts)... alas, it's the overall trajectory of Euro-denominated debt that should worry us today.
Italian BTPs are faring best, with only +3pts to 4.095% (a yield of over 4% is not reassuring, however), while Spanish bonds, like our OATs, are adding +5pts to 3.466%.

In France, the PMI HCOB index for French manufacturing industry, produced by S&P Global, fell from 46.4 in May to 45.4 in June, highlighting an acceleration in the sector's contraction compared with the previous month.

Meanwhile, the HCOB PMI index for eurozone manufacturing industry, produced by S&P Global, fell from 47.3 in May to 45.8 in June, highlighting a sharp deterioration in the sector's economic situation, as well as an acceleration in its contraction (below the technical threshold of 50).
On the US side, the contraction of the US manufacturing sector increased slightly in June, continuing to reflect weak demand.
This is demonstrated by the Institute for Supply Management's survey, in which the index stood at 48.5 last month, down 0.2 points on May's 48.7.

The new orders component improved to 49.3 from 45.4 the previous month, but the production component fell back to 48.5 from 50.2 the previous month.
The employment sub-index also eased to 49.3 from 51.1 in April.
Just before the ISM, S&P Global had announced that its manufacturing index had come out at 51.6 for the past month, compared with 51.3 in final data for May.
T-Bonds at mid-session look just as bad as our Bunds, with a tension of +9Pts towards 4.485%, which is quite simply their worst level since the close on May 31.

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