(Updated with analyst comments)
by Stefano Rebaudo
April 11 (Reuters) – French government bonds were not immune to the general rise in bond yields on Monday, but the gap with their German counterparts narrowed, after the results of the first round of the presidential election in France, which give the outgoing, Emmanuel Macron, clearly in the lead.
“Macron’s comfortable lead reduces the suspense for the second round of voting,” said Moritz Paysen, currency and rates adviser at Berenberg.
Xavier Chapard, head of research and strategy at LBPAM, however, believes that “the markets should not be complacent because the probability of an election of Le Pen is limited but far from zero”.
The final results give Emmanuel Macron the lead with 27.84% of the vote, against 23.15% for the candidate supported by the National Rally (RN), Marine Le Pen.
But the polls on the intentions to vote for the second round all give the head of state winning in the second round on April 24, although with a significantly reduced gap compared to that of 2017.
The ten-year OAT yield, at 1.303% at 12:30 GMT, is up three basis points, after peaking at 1.319%, its highest level since July 2015. But the yield spread (“spread”) with the German ten-year-old is reduced by almost six points to 48.3 basis points compared to its level on Friday.
“Over the next couple of weeks, there’s the potential for that yield gap to widen a lot, up to 85 points, if the polls indicate a tight second round,” said David Riley, chief strategy officer at investment at BlueBay Asset Management.
Yannick Lopez, strategist at OFI Asset Management, estimates that the “spread” could reach between 70 and 80 basis points if the far-right candidate is ahead of the outgoing president in the second round voting intentions.
“The ‘spread’ will probably remain around 50 if the market anticipates a renewal of Emmanuel Macron, with a further tightening below 40 points in the event of his victory,” he added.
Beyond the presidential election in France, investors are positioning themselves in anticipation of the monetary policy meeting of the European Central Bank (ECB) on Thursday, against a background of accelerating inflation.
The European bond market also remains under the influence of the US market, on which yields continue to rise on the eve of the publication of monthly consumer price figures in the United States.
Money markets are now pricing in a 70 basis point rise in ECB rates by the end of the year, compared to 65 points on Friday.
(Report Stefano Rebaudo, French version Marc Angrand and Laetitia Volga, edited by Jean-Michel Bélot)