French Bond Rout Pauses as Traders Assess Le Pen’s Reassurances

(Bloomberg) -- French government bonds won some respite after assurances from far-right leader Marine Le Pen that she would co-operate with President Emmanuel Macron should she prevail in upcoming national elections.

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Yields steadied across the curve on Monday after Le Pen, leader of the National Rally party, said she won’t try to push out Macron if she wins in an appeal to moderates and investors, telling French newspaper Le Figaro that she is “respectful” of institutions.

Investors have taken fright at Macron’s surprise decision to call a snap vote given the lead that her party enjoys in the polls. A victory for National Rally opens the door to looser fiscal policy that risks piling pressure on France’s stretched public finances.

The 10-year yield spread over safer German notes widened the most on record last week, according to data compiled by Bloomberg going back to 1990.

Still, the market remains fragile ahead of the first round of voting on June 30. As trading kicked off, the 10-year yield gap over German bonds grew to more than 80 basis points, the widest level since 2012 on a closing basis. While that largely reflected a change in the underlying benchmark bond and not a fresh bout of selling, strategists warned against chasing the move.

“Investors should stay out of it at the moment,” said Evelyne Gomez-Liechti, rates strategist at Mizuho International. While “there can be some short-term small consolidation”, there’s still huge uncertainty given a lack of clarity over the National Rally’s economic policies, she added.

The yield on a French bond maturing in 2034 rose one basis point to 3.19%, while the five-year yield rose three basis point to 2.97%, in line with peers. The Italian 10-year bond spread over Germany also retreated in a sign that last week’s risk-off sentiment was easing. It fell four basis points to 153 basis points.

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