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What Fillon drags up, Fillon will bring down.

The premium investors are demanding to hold French government debt has fallen to its lowest level since presidential candidate François Fillon was engulfed in an embezzlement scandal last month, with pressure on bonds easing after the former prime minister vowed to stay in the country’s election race today.

France’s 10-year bond yield gap with Germany has shrunk to 64 basis points on Wednesday – the lowest level since February 1 – the day after a satirical French newspaper made the allegations that Mr Fillon had mis-used taxpayer money to pay his wife and children for work they did not do.

A combative Mr Fillon confirmed he would be placed under a formal investigation for the “fake jobs” scandal, but pledged not to “give up” in the fight for the Elysée Palace.

“I will not surrender. I will not withdraw”, Mr Fillon said at a press conference in Paris today.

A former favourite for the job, the right-wing candidate took a hit in the polls in the aftermath of the scandal but has since recovered to joint second place with centrist candidate Emmanuel Macron.

They are both polling around 20 per cent in first round voting intentions behind Marine Le Pen on 27-28 per cent. Second round polls indicate both Mr Fillon and Mr Macron would triumph against Ms Le Pen.

Bond investors seem to be taking comfort in Mr Fillon’s resistance, betting that he has a good chance of beating the eurosceptic Front National leader in a head to head vote.

France’s 10-year bonds have been outperforming their eurozone peers on Wednesday, with yields flat on the day. German Bunds however are selling-off, pushing up yields 6 basis points, as data released later this afternoon is expected to show an acceleration in inflation in Europe’s largest economy.

Copyright The Financial Times Limited 2017. All rights reserved.
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