Our views

French bonds rally into two horse race


Craig Inches, Head of Short Rates and Cash

24 April 2017

French Government bond markets will be feeling relief as at least one mainstream candidate remains to contest the French election. We have already seen a tightening in the spread between Bunds and OATs, with 10 year maturities significantly tighter by 15bps in early trading.
However, French debt is unlikely to escape the bonfire of volatility just yet. Should Macron take victory in the second round, the long-term question of whether European government bond prices, particularly in longer dated assets, represents fair value remains to be seen. As the European Central Bank’s loose monetary policy begins to be tightened this year, markets could see much larger long-term moves in bond yields than any political shocks could create.

French government bond markets will be feeling relief as at least one mainstream candidate remains to contest the French election. We have already seen a tightening in the spread between Bunds and OATs, with 10 year maturities significantly tighter by 15bps in early trading.

However, French debt is unlikely to escape the bonfire of volatility just yet. Should Macron take victory in the second round, the long-term question of whether European government bond prices, particularly in longer dated assets, represents fair value remains to be seen. As the European Central Bank’s loose monetary policy begins to be tightened this year, markets could see much larger long-term moves in bond yields than any political shocks could create.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.