Global Credit Bullets | Monday, 26 October 2026

France’s fiscal deterioration and political risks are likely to keep sovereign-credit volatility elevated, while resilient activity and tighter financial conditions argue for a pause in monetary tightening and a preference for duration over riskier credit.

• French spreads reached 175bp, while the budget deficit was approximately 5.1% of GDP in 2025 and public debt rose to 115.6% of GDP, with debt projected to exceed 120% by 2027.
• At 175bp, France’s implied rating is around BBB, almost four notches below its actual sovereign rating; the authors argue that ECB support through the TPI could limit disorderly contagion rather than shield France from fiscal deterioration.
• Israel’s election is expected to be exceptionally close, with Netanyahu’s coalition weakened and Arab parties potentially decisive; prolonged political deadlock is considered the most likely outcome.
• Tighter financial conditions are reducing the need for further rate increases, and the market largely expects the Federal Reserve to remain on hold in October; the ECB could also pause if peripheral spreads widen further.
• In Brazil, Lula’s surprise fourth-term victory leaves a right-leaning Congress, while a weaker real and higher-for-longer rates could weigh on growth and worsen debt dynamics unless fiscal adjustment is delivered.

Takeaway: The team prefers duration exposure to high-yield spreads and broader risk assets, while warning that France’s fiscal trajectory, political uncertainty and the scale and timing of Brazil’s fiscal adjustment remain key risks.