French 10-year yields tumble to lowest in a month

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A fresh twist in France’s presidential election has helped ease selling pressure on its volatile bonds today.

France’s benchmark 10-year bond yield – which reflects the government’s borrowing costs – has tumbled to its lowest since in a month to 0.95 per cent after one of the country’s centrist politicians threw his weight behind pro-EU candidate Emmanuel Macron.

Mr Macron, a former economy minister, has been suffering in the polls in recent week with surveys showing a narrowing second round margin of victory for the centrist against the far-right Marine Le Pen.

But an announcement by independent candidate Francois Bayrou that he would not run and instead urge his supporters to back his rival yesterday has helped French bond yields snap a three-day losing streak losing 11 basis points since the announcement late yesterday.

French bonds have become a volatile barometer of market nerves over the country’s presidential election which kicks off with a first round vote in late April.

Ms Le Pen’s vows to take France out of the eurozone, rip up the EU’s budget rules and embark on mass government spending has seen investors sell French debt and demand the highest premium in four years to hold its bonds over Germany’s.

France’s 10-year bond yields had been trading at the same level as Ireland’s in recent weeks – a bailout economy which is rated at least two notches below its AAA rating.

But today’s spike in investor demand for the paper has sent yields comfortably below the 1 per cent mark at 0.95 per cent. The bonds have been selling off steadily since September, pushing up yields from a record low of 0.1 per cent.

Mr Macron will be hoping for a fresh poll boost when a new survey is released at 5pm today (GMT). He is currently polling around 20 per cent behind Ms Le Pen’s 27 per cent in first round voting intentions.

Analysts at Morgan Stanley think Ms Le Pen only has a 15 per cent chance of triumph in May’s second round vote – around half the current probability implied by the betting markets.

The bank’s model suggests Mr Macron will make it to the Elysee and think French bonds and stocks “have the best probability-weighted risk v reward and reasonable upside in our highly likely base case scenario”, said Daniele Antonucci at Morgan Stanley.

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