French Bonds Rally After Macron Boosts Presidential Campaign

UBS's Fiotakis Says Investors Look to Hedge French Risk

French government bonds led gains in Europe after independent candidate Emmanuel Macron agreed to an alliance with his centrist rival Francois Bayrou, boosting his bid to become president.

Yields on the nation’s 10-year notes fell to the lowest in two weeks after Macron said late Wednesday that he had agreed to Bayrou’s offer of a deal to avoid splitting the moderate vote. The gains accelerated after an OpinonWay poll released on Thursday showed Macron would beat anti-euro candidate Marine Le Pen by a margin of 20 percentage points in the second round of the elections. German bonds, seen as a haven, lagged gains after retreating from a seven-week high on Wednesday.

“France is definitely driving the European fixed-income complex,” Francesco Garzarelli, the co-head of global macro and market research, said on Bloomberg TV. “I don’t see in the cross-section of prices anything suggesting that we are about to witness a bout of systemic risk like we had a few years ago.”

  • French 10-year yield falls 3bps to 0.984%, German 10-year yield is down 1bp to 0.269%
  • Upcoming redemptions also support French notes as investors move to other series
  • Italian 10-year yield rises 2bps to 2.218% amid supply pressure as country plans to sell 10-year debt worth 2b euros-3b euros next week
  • Bundesbank President Jens Weidmann reiterates euro-area inflation pressures remain relatively low; says question can be asked whether the ECB should consider changing guidance on further potential easing
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