CITIC Securities: Is the European debt crisis returning?

The Zhitong Finance App learned that CITIC Securities released a research report saying that the focus of European sovereign credit risk is shifting from “marginal countries” to “core countries.” As of October 2026, interest spreads on 10-year French and German treasury bonds rose to 150.3 bps, at 99.8% since 2001, the highest since the 2011 European debt crisis; the French-Italian spread rarely corrected to +39.8 bps, and French yields overtook Italy, a rare structural break since the establishment of the Eurozone. The driving force is that the energy supply-side shock caused by the Middle East War boosted inflation, forced the ECB's policy shift, compounded France's structural weakness of “high unemployment+high deficit+high debt” with a V-shaped reversal of debt interest burdens, causing France to be systematically revalued within the core country. However, the Eurozone banking system has sufficient capital and liquidity buffers (CET1 at 16.0% and LCR at 154.9%), negative feedback from sovereign credit—banks has yet to be formed, and it is still a “repricing” rather than a “crisis.”

Compared to the US, the two countries have similar fiscal book fragility, but with a stronger growth center, lower private-sector leverage, and the US dollar's reserve currency status, the US debt is relatively more sustainable. We judge that this round of widening interest spreads is “French specific” rather than a systematic revaluation of global sovereign credit. Overall, however, gold may still have trading opportunities in the current context of rising investors' financial concerns about developed countries. Amid the slowdown in AI CAPEX, ongoing geographical conflicts, and sovereign credit disturbances, we recommend remaining patient with both Hong Kong and US stocks, and November may usher in better allocation opportunities.

CITIC Securities's main views are as follows:

The epicenter changed from a “marginal country” to a “core country”: the spread between France and Germany rose to the highest level since 2011, and the spread between France and Italy was rarely inverted

As of October 20, 2026, the spread on 10-year French and German treasury bonds rose to 150.3 bps, at 99.8% since 2001, the highest since the European debt crisis; the French-Italian interest rate spread turned positive to +39.8 bps, and France's 10-year yield (4.92%) overtook Italy (4.53%), a rare structural break since the establishment of the Eurozone. It is worth noting that France's absolute yield is only 66% in history, yet the relative premium is at an extreme value in history. The market's repricing of France is essentially a “relative differentiation within the core country.”

Energy supply-side shocks boosted inflation and reversed the ECB's path. France's structural fragility and V-shaped reversal of interest burdens made it the epicenter

The energy shock caused by the Middle East War boosted the Eurozone HICP to 3.8% (a historically high score), and the ECB raised interest rates to 2.50% twice in June and September 2026; at the same time, France was re-evaluated as “core country status+marginal country sign” — the unemployment rate of 8.2% and the deficit rate of -5.1% were the highest among major Eurozone countries, and interest expenditure as a share of GDP rose from a low of 1.3% in 2020 to 2.2% in 2025. Passively worsened fiscal fragmentation compounded political fragmentation and increased its repricing pressure.

At the border, the banking system is fully buffered, negative feedback from sovereign banks has yet to be formed. Currently, it is a “repricing” rather than a “crisis”

Eurozone banks reached 16.0% CET1 and LCR reached 154.9%. Combined with ECB tools such as TPI and OMT, they form a key buffer for the evolution of this round of repricing into a systemic crisis. Currently, it is closer to “risk premium normalization” rather than a repayment crisis.

The US treasury is also under pressure, but it is more sustainable than France

The US debt ratio of 122.6% and the deficit rate of -5.8% is even higher than France's, but with a growth center, lower private sector leverage, and the dollar's reserve currency status, its debt sustainability and investor confidence are higher than France's. We judge that this round of widening interest spreads is a relative deterioration in French credit rather than a systematic revaluation of global sovereign credit. Overall, however, gold may still have trading opportunities in the current context where investors' financial concerns about developed countries are heating up.

Hong Kong and US stock outlook: Remain patient amid disruptions in AI CAPEX, geography, and sovereign credit

US stocks: The game between AI regulation and data center construction intensified between the two parties before the election, compounding expectations that the US and Israel might restart an attack on Iran. We believe that in the short term, US stocks will continue to rotate. It is expected that the capital will switch from AI themes to daily consumption of energy and defense attributes, and/or benefit from health care that the Democratic Party sweeps through expectations.

Hong Kong stocks: Hong Kong stocks declined significantly this week due to concerns about AI CAPEX, geography, and sovereign credit. Currently, the dynamic PE of the Hang Seng Index and Hengke has narrowed to 9.6 times and 13.4 times, respectively. The latter is already below the bottom level of Hong Kong stocks after the outbreak of “equal tariffs” on April 7 last year. If a series of new domestic real estate policies improve residents' wealth expectations and drive a recovery in domestic demand, and the three-quarter report verifies the inflection point of performance, we judge that mid-November is a good time to allocate Hong Kong stocks. In the short term, in addition to dividend sectors such as utilities, telecom services, and banking, we also recommend focusing on: 1) consumer electronics, which has maintained a high share of short sales but has benefited from a reversal in overseas AI hardware transactions; and 2) falling risk-free interest rates are depressing financing costs, or benefiting from CXO and innovative drugs that the Democratic Party has swept away expectations.

risk factors

Eurozone inflation has further exceeded expectations; the ECB's interest rate hikes have exceeded expectations; global long-term interest rates have risen above expectations; global geopolitical conflicts have once again escalated; historical data does not represent future performance, etc.