Investor jitters continue around Le Pen and French elections

Yield gap between German and French 10-year bonds exceeds 0.81 percentage points

Marine Le Pen: a new poll puts her on course to win the first round vote of the French presidential elections. Photograph: Reuters/Robert Pratta

The premium for 10-year French debt climbed to a fresh post-euro zone crisis high over equivalent German government bonds on Monday, reflecting investor jitters about France’s upcoming presidential election.

The yield gap exceeded 0.81 percentage points for the first time since August 2012 as France's 10-year bond yield – which reflects the government's borrowing costs – jumped 7 basis points to 1.1 per cent. Renewed selling pressure was sparked by a latest poll showing Marine Le Pen is on course to emerge as a clear winner in the first round vote to be held in late April.

Ms Le Pen, who has promised to hold a referendum on France's euro zone membership, is polling at 27 per cent in the first round vote, with her two main rivals, François Fillon and Emmanuel Macron, tied at 20 per cent, according to latest collated polls from OpinionLab.

The prospect of a Le Pen presidency has spooked French bond investors, with markets warily eyeing the apparent demise of her biggest rival, the right-wing Mr Fillon. Investor demand for French bonds also tailed off last week after the country’s two main left-wing candidates for president were reportedly considering an alliance.



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is not having any significant impact on other European markets at the moment. In Dublin, 10-year interest rates continue to trade just below 1.1 per cent and have traded below French levels in recent days.

Didier Saint Georges, managing director at asset manager Carmignac, said: “The complexity and fluidity of the local political situation make it impossible for markets to price risks today with any relevance. There are still many undecided voters, and the impact on them of past and future mudslinging between candidates is likely to maintain a high level of uncertainty until April 23rd.”

Polls indicate Ms Le Pen would emerge as a loser whoever her opponent would be in a second round run-off against Mr Fillon or Mr Macron by a margin of 56 per cent and 58 per cent respectively.

Bond-buying measures

Meanwhile, Germany’s short-dated two-year yields have plumbed to a fresh record low of minus 0.85 per cent, rallying strongly after latest figures show they are being snapped up as part of the European Central Bank’s bond-buying measures.

The ECB dropped its restriction on purchasing government debt yielding below its minus 0.4 per cent deposit rate earlier this year, allowing the Bundesbank to buy up the short-dated paper to hit its monthly quantitative easing targets. – Copyright The Financial Times Limited 2017