Macro & Markets: French OATs in focus

French fiscal stress and elevated energy prices are increasing market risks, but the NOK and SEK could become attractive safe-haven currencies once the initial risk-off phase subsides.

• Brent has stabilised near USD 110 per barrel and European natural gas has risen above EUR 90 per MWh, while Europe enters winter with below-normal gas inventories and high import dependence.
• Equity markets have weakened, with the Nasdaq 100 down 7% from its early-October peak, the Nikkei 225 down more than 10% and the KOSPI down more than 20%; the VIX has risen but remains close to its historical average.
• France is the main European bond-market concern: the 10-year OAT yield reached 5.05% and the OAT-Bund spread widened by about 30 basis points in a week to 170 basis points, with a possible Moody’s downgrade posing a further sell-off risk.
• Nordea expects Sweden to grow by 2–3% annually in 2026–2028 versus 1–1.5% for Norway, while Norges Bank has raised its policy rate to 4.5% and the Riksbank has kept it at 1.75% because of low inflation.
• The NOK has gained about 8% against the USD and 16% against the SEK this year, benefiting from its oil and geopolitical exposure, although both Scandinavian currencies tend to weaken when equities sell off and the VIX surges.
• In a renewed euro debt crisis, Nordea expects an initial depreciation in the NOK and SEK followed by appreciation as Nordic fiscal strength and interest-rate differentials regain importance; during 2012, both currencies strengthened by 5–10% between May and August.

Takeaway: France’s fiscal deterioration could restrain the ECB and keep markets volatile, but investors may favour the NOK and SEK over the medium term, with the NOK benefiting from persistent geopolitical risk and the SEK from stronger expected growth and tighter future policy.