Liberty, Equality, 4.93%

Somebody should tell the Élysée that the legislature has moved. It sits in the bond market now, votes every day, and unlike the Assembly it reliably reaches a majority.

Tuesday's result: the French 10-year OAT at 4.93%, the Bund at 3.42%, a spread of 150.8 basis points. In mid-August that gap was about 86. One data provider had it north of 158 earlier this month, the widest since November 2011, and the number keeps getting rounded up by people who have stopped enjoying their lunch. France has spent October yielding more than Italy, a sentence that would have emptied a Brussels dinner party in 2012.

Now the ledger. Prime Minister Sébastien Lecornu runs a minority government. His 2027 budget books €54 billion of savings and a deficit target of 5% of GDP, looser than the 4.1% Paris promised Brussels. This year's deficit is running at 5.4%. Debt sits near 119% of GDP. The interest bill reaches roughly €91 billion next year, and by one tally about €12 billion of the €23 billion in non-interest restraint gets eaten by higher coupons. Consolidation that hands half of itself to the coupon is a treadmill, and the bond market holds the speed dial. The Treasury plans a record €340 billion of borrowing in 2027, about €1.3 billion every working day. That is a standing appointment with the buyer, and the buyer has noticed it is a regular.

Then the streets. Last weekend 550,000 people marched, protests turned violent, roughly 2,400 were arrested, and curfews now run from Paris to Nice and Lyon. Macron refused his interior minister's resignation. The minister for relations with parliament has conceded that passing the budget by vote will be very difficult, and La France Insoumise says it will move to censure Lecornu if he goes around the Assembly. The full bill gets its vote on November 17. The revenue-section vote is a rehearsal: last year's equivalent failed 404 to 1 and the budget passed anyway. A country where a 404 to 1 defeat counts as encouraging has a governance problem that no spreadsheet will fix.

Moody's reviews on Friday. France sits at Aa3 with a negative outlook, one notch above A1, while S&P and Fitch have it at A+ stable. Moody's has already named the exam: whether a fractured political system can deliver durable consolidation. The Assembly has been sitting that exam in public all month, with the answer sheet on fire. This is also the last budget of Macron's presidency, drafted with an election on the horizon, so every party in the chamber has a reason to vote for the deficit it will inherit and against the pain required to shrink it.

I know the case for calm, and TD's version of it is decent. Five-year CDS for France runs 72 to 81 basis points, about a third of the 2011 peak near 250. The OAT still yields less than the 10-year Treasury at 5.12%. Plenty of this is the world: Brent at $108.79 and a 30-year Treasury at 5.44% would squeeze any issuer. Since the run-up began, TD counts roughly 150 basis points on the OAT, 132 on Italy, 115 on the US and 83 on Germany.

Run that arithmetic the other way. Strip out Germany's 83 and America's 115, and what remains is 67 basis points over the Bund and 35 over the Treasury that nobody can pin on Tehran. That slice belongs to Paris. Italy, with the heavier debt, has been collecting the better quote. What gets priced is the process. A country that cannot pass a budget gets quoted like a country that cannot pass a budget.

Britain ran this experiment in 2022. A government announced a budget the market disliked, gilts repriced within days, the Bank of England stepped in, and the prime minister lasted 49 days. Paris has the harder version. Nobody has announced anything. The market is repricing a budget that does not exist yet, passed by an Assembly that may never pass it, and it is doing so before a single euro of the promised savings has been found. London at least got its crisis over with in a month. France is offering a slow one, billed in instalments, with an auction calendar attached.

The unspoken reassurance underneath every calm research note is the ECB, which meets on October 29 and has no wish to be anyone's plan A.

So Friday brings Moody's. A one-notch cut to A1 is a headline everybody has already written, and the spread has been writing it for two months. The harder question comes after. Deputies get to abstain, and fund managers get to sell.