Bank of America Upgrades French Equities Amid Bond Volatility

Bank of America upgraded French equities from marketweight to overweight, despite maintaining a bearish outlook for the broader European market. The shift comes as the spread between French and German 10-year government bond yields, known as the OAT-Bund spread, reached 140 basis points. This represents the highest level since the 2011-12 euro zone debt crisis.

Political uncertainty in France and rising global borrowing costs drove the increase in the spread. Bank of America expects the spread to fluctuate between 100 and 150 basis points, noting that a move toward the upper limit could trigger intervention from the European Central Bank.

While the bank shifted its overall stance on European equities from underweight to neutral, it forecasts a further 7% decline in the STOXX 600 by the second quarter of 2027. This projection is based on high real yields and risks regarding the sustainability of capital expenditure in artificial intelligence.