Wall Street Brings the French Election to the Betting Table! Goldman Sachs and Deutsche Bank Package French Bank Debt, AT1 Bonds Become New Chips

Zhihong Finance APP has noted that Wall Street is turning next year's French election into a trading strategy for investors, regardless of what election outcome they expect.

According to informed sources, Goldman Sachs and Deutsche Bank are offering a range of French bond packages—including some of the riskiest bank debt—that allow investors to profit from or hedge risks against different political outcomes.

These packages allow investors to go long or short on portfolios that include “Additional Tier 1” (AT1) bank securities, even without directly holding these bonds. Sources said investors can gain risk exposure by trading the underlying bonds or through derivatives such as total return swaps (TRS) arranged by the banks.

Ahead of April’s presidential election next year, France's political risk is gradually becoming a key focus for credit investors. The core market concern is how the successor of the pro-business centrist Emmanuel Macron will handle a fiscal deficit exceeding 5%, rising debt servicing costs, and an economy teetering on the brink of recession.

Economists at Berenberg, including Holger Schmieding, wrote in a report last Friday: “France’s economic growth is stagnating, fiscal policy remains on an unsustainable trajectory, reform momentum has stalled, and the political outlook appears rather alarming.”

French AT1 bonds have performed poorly over the past month

Goldman Sachs has been an active participant in the rapidly growing credit portfolio market. Previously, the bank and JPMorgan have assembled trading portfolios that allow investors to bet on private credit indirectly through insurance companies, which are among the largest holders of this asset class. The two banks have also created publicly traded company portfolios with exposure to private credit.

Deutsche Bank will officially launch its credit portfolio platform next month, but has already actively constructed trades for individual clients with direct, bespoke demands.

Such packages do not represent the bank’s own trading desk views and are typically just a way to facilitate client transactions.

Sean Flanagan, Global Head of Investment Solutions at Deutsche Bank, stated these packages “are not specifically designed to address current market events, but are available for clients who want to express various views on the topic.”

Data shows that French political factors have been seeping into the credit markets and are being reflected in AT1 bonds. Over the past month, although the broader AT1 market spreads have narrowed for the most part, risk premiums on the country's bank bonds have widened across much of the yield curve.