Structural Breaks and Market Integration: Analysing the Effects of France’s 2024 Legislative Crisis and 2025 Sovereign Downgrade

Marcin Liberadzki; Arkadiusz Orzechowski

doi:10.26354/bb.3.1.102.2026

Published: 2026-07-09

Vol. 102 No. 1 (2026)

Structural Breaks and Market Integration: Analysing the Effects of France’s 2024 Legislative Crisis and 2025 Sovereign Downgrade

Marcin Liberadzki

, Arkadiusz Orzechowski

Section: Problems and Opinions

https://doi.org/10.26354/bb.3.1.102.2026

Abstract

This article examines the relationship between yield spreads of covered bonds and government bonds in France and Germany. The primary objective of the study is to determine whether the dissolution of the French National Assembly in June 2024 and the sovereign credit rating downgrade of France in October 2025 can be classified as structural breaks and to identify how these events influenced the relationships between mid-yields to maturity in these markets. The analysis is conducted using a vector autoregression model. The empirical findings, supported by Wald tests, confirm that both events constituted structural breaks. While the study finds no evidence of long-term cointegration, it reveals that the Granger causality evolved over time. Specifically, an initially bidirectional relationship between French and German mid-YTM spreads of debt securities became unidirectional following the 2024 legislative crisis, with developments in the French market influencing those in Germany. Although this influence weakened following the rating downgrade, the results suggest that the French market's impact on Germany may persist in the long term. Ultimately, the study underscores the importance of political stability and sovereign credit quality as key determinants of pricing dynamics and market integration within the euro area.

Keywords:

vector autoregression model , Granger causality , structural breaks , dissolution of the French National Assembly , sovereign credit rating downgrade of France

JEL Codes

C58, G12, G21

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Liberadzki, M., & Orzechowski, A. (2026). Structural Breaks and Market Integration: Analysing the Effects of France’s 2024 Legislative Crisis and 2025 Sovereign Downgrade. Safe Bank, 102(1), 40–52. https://doi.org/10.26354/bb.3.1.102.2026

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Vol. 102 No. 1 (2026)
Published: 2026-07-09

ISSN: 1429-2939

eISSN: 2544-7068

10.26354

Publisher

Bankowy Fundusz Gwarancyjny

Licence CC

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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