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A jump in the polls for Emmanuel Macron has helped French bonds extend their three-day rally this morning, putting 10-year yields on course for their best week since last September.
France’s latest Opinionway survey shows the centrist former economy minister has been given a 3 point polling boost to reach 23 per cent of the vote in the first round voting intentions. Marine Le Pen, the far-right candidate vowing to take the country out of the eurozone, slipped one point to 26 per cent from the start of the week.
Mr Macron’s chances have been given a fillip after his centrist rival Francois Bayrou said he would not run in April’s presidential election and urged his supporters to back Mr Macron instead. That’s also helped the independent candidate, who has suffered in the polls in recent weeks, extend his second round win margin to 61 per cent from 56 per cent on Monday.
Bondholders are cheering on the news, with benchmark 10-year yields – which reflect the French government’s borrowing costs – reversing a losing streak to tumble to their lowest in a month (yields fall when a bond’s prices rise). Yields have slipped another 3 basis points to 0.95 per cent today.
French debt has become a volatile barometer for investor fears about the country’s unpredictable presidential race – with the spread between French and German debt hitting a new post-eurozone crisis high this month. Germany’s two-year debt has been one of the biggest beneficiaries of politically-induced nerves, with its short-dated yields falling to the lowest on record.
The country’s stocks meanwhile have been having a better time of it (read more here), leading analysts at UBS to dub equity investors “too relaxed” about the political risks associated with a Le Pen victory.
Still, Felix Huefner at UBS notes that even if Ms Le Pen makes it to the Elysee, there remain plenty of legal and political hurdles in implementing her “Frexit” plan:
The bottom line is that without a majority in parliament and thus a Prime Minister from the Front National, it would be very difficult to push through an exit from the EU.
Holger Schmieding at Berenberg said that in the “highly unlikely worst-case scenario” that Ms Le Pen does push through and win a referendum on a eurozone exit “it could spell the end of Europe as we know it”.
Polling image via Opinionway