[MARKET ANALYSIS] OATs await Wednesday's no-confidence motions against the French government re. Mercosur

• On Wednesday, January 14th, two no-confidence motions will be placed against the government, one from the far-left (LFI) and another from the far-right (RN). Neither motion is expected to succeed, as LFI will not support RN and the Socialists (PS) will not support LFI. However, Politico has a line from a centrist official noting that "there could be an accident". 
• The motions are in response to President Macron waiting until the last moment to confirm he would vote against the Mercosur deal, a delay that LFI and RN deem unacceptable and merely posturing rather than presenting a real challenge to the EU-Mercosur deal.
• Domestic focus is, of course, mainly around the budget. Talks on the subject continue, but progress is stalling, and badly so, according to Politico.
• Amidst this, the OAT-Bund 10yr yield spread remains just above the 71bps mark and at the top-end of the 69-72bps 2026 range. OATs themselves trade in line with fixed income peers, as the updates around Fed Chair Powell dominate, and as such are near enough flat.

The planned no-confidence motions against Macron's government signal underlying political tension that could cause volatility in French assets, particularly OATs. Although neither motion is expected to succeed, delays over key issues like the Mercosur deal may reflect broader uncertainty, impacting investor sentiment and influencing yield spreads, especially as the market also processes signals from the Fed.