French Bonds Drop on Potential Left-Wing Candidacy Merger

  • Socialist Hamon says he’s talked with far-left Melenchon
  • French-German 10-year spread widens by most in a week

Why Populism Is Growing in France

French bonds dropped as the nation’s election campaign took another twist after Socialist Party presidential candidate Benoit Hamon said he’s holding further talks with far-left candidate Jean-Luc Melenchon about a potential single candidacy.

A merger could bring about a showdown with Marine Le Pen’s anti-euro National Front, with the latest polls showing the combined vote share of the two candidates would see them qualify for the second round of voting in May. The yield difference between French and German 10-year bonds widened the most in a week, while the nation’s stocks and the euro dropped, after Hamon made the comments in an interview with France Info radio.

“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. It’s too early to call if this is a game changer as we do not know how serious the merger talks are, but certainly this is not something the market is waiting for.”

  • French 10-year yields climb three basis points to 1.05 percent, widening the spread over similar-maturity German bunds by six basis points
  • The euro fell 0.2 percent to $1.0650
  • France’s CAC 40 was down 0.9 percent, underperforming a 0.6 percent fall in the broad Stoxx Europe 600 Index, and surrendering gains made so far this year. French banking stocks were among the biggest fallers in the sector, with Credit Agricole SA down 2.4 percent and Societe Generale SA down 1.9 percent
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