Le relief rally.

French government bonds are enjoying their best run since the aftermath of the UK’s Brexit vote as investors take comfort in polls showing a widening margin of victory for centrist candidate Emmanuel Macron in its forthcoming presidential elections.

French debt, which has become a volatile barometer for investor nerves about the country’s elections in late April and early May, has now rallied for its fourth consecutive day to enjoy the best run of trading since June.

Investor demand for 10-year bonds has climbed after one of the country’s centrist candidates, François Bayrou, threw his weight behind Mr Macron – giving the former economy minister a three-point boost in the polls at the end of last week. Mr Macron had taken a hit in popularity in recent weeks, boosting the far-right candidate Marine Le Pen.

France’s 10-year bond yield, which moves inversely to its price and reflects the government’s borrowing costs, has now fallen to a one-month low of 0.89 per cent.

Bonds in the eurozone’s second largest economy had dropped sharply earlier this month, pushing the 10-year yield to an 18-month high of 1.1 per cent after the country’s erstwhile favourite for president François Fillon was hit by an embezzlement scandal.

This weekend, Mr Fillon – a former right-wing prime minister – won a temporary reprieve in an investigation alleging misuse of funds to pay his family (read more here). He is currently polling in joint second place with Mr Macron and behind Ms Le Pen in first round voting intentions.

The National Front leader is vowing to pull France out of the euro, but is expected to lose in the final round vote in early May by a margin of around 60 per cent to 40 per cent.

That news has helped France’s 10-year yields outperform their major European peers this morning, dropping 3 basis points, while German Bund yields are up 3 bps and UK gilts up 0.5bps.

(Chart: Bloomberg.)

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