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France’s 10-year bond yields have slipped below 1 per cent today as selling pressure on the country’s debt eases in the wake of a prospective centrist alliance in its presidential election.
The decision by independent candidate François Bayrou not to stand in the country’s elections and instead throw his support behind fellow centrist Emmanuel Macron has helped French bonds rally since late yesterday – snapping a three-day losing streak for the benchmark debt.
French 10-year bonds are outperforming the rest of the eurozone today, with yields falling around 4 basis points, while Germany’s equivalent maturity Bunds are up 1 basis point. The spread between the two bonds – a measure of the premium investors are demanding to hold French debt – has also fallen back from its post-eurozone crisis highs at around 71 basis points today.
Mr Bayrou, once considered the “third man” of French politics, said on Wednesday that he backed the former Socialist economy minister, who is polling in joint second place with Francois Fillon and behind the far-right Marine Le Pen.
“The fragmentation of the electorate is such that a presidential bid would only increase the perils [facing France]” Mr Bayrou said yesterday as he vowed to try to block Ms Le Pen’s road to the Elysee Palace in May.
Mr Bayrou had been polling at around 5-6 per cent, with his decision giving Mr Macron a boost in the latest betting odds after two weeks of steady declines. The former economy minister has suffered in the polls of late following controversial comments about France’s role in the Algerian civil war and concerns about his ambiguous policy objectives.
Mr Bayrou’s boost has however also helped lift the euro off its lowest level in a month. The single currency is trading flat against the dollar this morning at $1.0550.
Jittery markets are taking comfort in the news having already been stung by the Brexit vote and election of Donald Trump last year.
“Though the polls continue to suggest that a Le Pen victory is unlikely in the second, decisive round, the tone throughout yesterday’s session was clear in that the market does not wish to be proven incorrect, yet again”, said Lyn Graham-Taylor at Rabobank.