French bonds under the spotlight following election of Donald Trump

French government bonds will be under close scrutiny this week amid concerns that the election of Donald Trump will help boost the chances of a victory of the far-right Marine Le Pen at the French elections next year. 

Ms Le Pen, leader of the anti-establishment and anti-Europe National Front party congratulated Mr Trump and said his victory is a harbinger of what could happen in her own country.

“A lot of investors who don’t fully understand the way politics works in Europe are looking at the victory for Trump and are thinking, ‘Could we get the same type of event elsewhere?’” said Charles St-Arnaud, a strategist in London at Nomura International.

“Markets are likely to be more reactive to political events like the French election after both Brexit and a Trump win occurred against expectations. This could lead to an underperformance of French bonds relative to peers,” he said. French 10-year bonds had their worst week relative to their German peers since December 2013.

Meanwhile, the biggest emerging-market stock selloff in more than a year yesterday extended to the Gulf on concern the US president-elect will change oil agreements and his nation’s relationships with Saudi Arabia and Iran.

Stock markets in Dubai dropped for a third day on Sunday, falling 1.3%, the lowest level since May. Abu Dhabi’s ADX General Index fell 1.1% and Qatar’s QE Index retreated by just under 1%. Egypt’s EGX 30 Index, the most volatile gauge in the world after Venezuela’s, extended its rally to 12 days.

Mr Trump promised independence from Opec at an event earlier this year, and vowed to dismantle a nuclear deal with Iran that unlocked the nation’s crude exports. He also said he would approve a pipeline from Canada to the US, which would curb demand for oil from the six-nation Gulf Cooperation Council.

“No one knows what Trump’s policies toward the Middle East will be, and that kind of uncertainty keeps investors away,” said Talal Touqan, the head of research at Abu Dhabi-based Al Ramz Capital, a brokerage and investment bank.

“Will he increase production from Canada and break oil agreements? What will his policies be toward Iran and Saudi Arabia?”