‘Politics’ impact on French bonds
Political maneuvering against a possible far-right majority in France is pushing bond yields lower.
As the second round of elections in France approaches, maneuvering by other parties to prevent the far-right National Union from gaining an absolute majority caused French bonds to rally.
The New Popular Front and President Emmanuel Macron’s Ensemble party, which came second and third in the first round of voting, respectively, started to withdraw their candidates in favor of each other.
It is stated that over 200 candidates withdrew in order not to split the votes against Marine Le Pen’s party.
While the French 10-year bond yield declined on this news, the yield difference against similar bonds of Germany decreased for the third day in a row.
The 10-year bond yield spread between the two countries narrowed to 71 basis points, the lowest since June 13.
According to Julius Bear SGMK Analyst Dario Messi, the decline in the yield spread reflects less concern that a radical political view could win an absolute majority and do whatever it wants in fiscal policy. But Messi said, “The yield spread is still high. A majority for the far right is still a possible scenario.”
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