French 10-year yields climbed two basis points to 1.03% in Paris, widening the spread over similar-maturity German bunds by six basis points. France’s CAC 40 fell 0.9%, led by bank stocks.
“This is clearly not a positive for French bonds,” said Kim Liu, a strategist at ABN Amro Bank. “It increases the odds of a Le Pen victory, with French bonds already being very vulnerable to political risks.”
Socialist candidate Benoit Hamon, now fourth place in polls, told France Info radio yesterday he had begun discussions on a united effort with Jean-Luc Melenchon, a former Socialist who now has fringe backing. Hamon also said he has reached out to the Green Party’s Yannick Jadot about one candidacy.
“What we need to discuss is the conditions under which we could come together and who in the end could — between Yannick Jadot, Jean-Luc Melenchon and myself — be best suited to embody the left in the second round of the French presidential race with a programme that could be shared,” Hamon said.
The campaign twist was bad news for French bondholders: Polls suggest that a unified left bid would dent the chance of pro-market candidate Emmanuel Macron, the current front-runner, to advance to the May 7 decisive round.
That would leave voters a choice between Le Pen and either Hamon or Melenchon, neither of whom is seen as market-friendly.
It might also broaden support for the anti-euro, anti-immigration Le Pen. A runoff against either Hamon or Melenchon “is the most favourable situation for Marine Le Pen to win,” Bruno Jeanbart, an OpinionWay pollster, said in an interview.
“For a candidate from the left to win he needs, at a minimum, to win as many votes from the right in the second round as Marine Le Pen. If it’s Emmanuel Macron a transfer of votes from the right is easy to imagine. If it’s a candidate much further to the left anchored in a radical programme, that’s a different story.”
As a result, French notes extended their slump, driving the yield difference between French and German 10-year bonds to the most in a week, while the nation’s stocks and the euro dropped.