Investors struggle to price French assets in response to political limbo
CNN
French stocks and government bonds struggled to find direction Monday following surprise results in France’s parliamentary elections, which saw left-wing parties outperform the far right Sunday, leaving the country’s parliament facing gridlock.
French stocks and government bonds struggled to find direction Monday following surprise results in France’s parliamentary elections, which saw left-wing parties outperform the far right Sunday, leaving the country’s parliament facing gridlock. The yield, or return sought by investors, on benchmark 10-year bonds rose by a fraction of a percentage point to 3.22% by 8.09 a.m. ET. But the premium traders demand to hold French bonds instead of the ultra-safe German equivalents was lower on the day. However, it was still a lot higher than before French President Emmanuel Macron called the snap elections on June 9. French markets have been unsettled ever since Macron’s shock decision, which came after his Renaissance party lost to the far right in a vote for European Union lawmakers earlier in June. The 46-year-old centrist has driven pro-growth economic reforms in Europe’s second-biggest economy, which investors fear could now be rolled back under a very different parliament. Analysts at Rabobank said Monday that uncertainty over the composition of the next government was likely to keep the risk premium on French government bonds — the so-called spread over German debt — at “elevated levels” compared with before Macron announced the snap elections. France’s left-wing alliance, the New Popular Front, came in first after the second-round vote Sunday, while Marine Le Pen’s far-right National Rally trailed in third place in a stunning reversal of first-round results. But with the left falling short of the 289 seats needed for a majority and with a weakened president, the national assembly is expected to be more fractured than ever. France is now set for a prolonged period of instability as three opposing blocs with competing ideas and agendas try to form a coalition or find themselves stuck in a state of paralysis.
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