French debate squashes bond spreads further

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French government bonds are now providing the smallest pick-up in yields compared to their German equivalents in six months, after a strong showing from centrist French presidential candidate Emmanuel Macron in a televised debate with his rival, far-right candidate Marine Le Pen.

The yield spread between the 10-year French and German government bonds – a measure of nerves surround the French vote – narrowed by 0.03 percentage points (3 basis points) to 39 basis points in trading on Thursday morning. This is the first time the spread between the two has narrowed inside 40 basis points since November 2016.

The closely watched indicator gapped out as far as 79 basis points in February, when fears about the consequences of a potential Le Pen presidency for financial markets were at their height. Le Pen has mooted an exit from the euro and return to the franc on the campaign trial, sending shock waves through European government bond markets earlier this year.

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