Investors’ speculations on the outcome of the upcoming French presidential election is causing volatility in the European bond markets.
On Monday, a poll showing Marine Le Pen in the lead for April’s first round caused yields on French 10-year bonds to rise to 1.064%. Investors feared that the euro skeptic Le Pen would take France out of the Eurozone and a potential “Frexit” would take place.
The sell-off is seen as “excessive” as the rally continued through Tuesday. However, the latest polls give her only about a third of the vote in the second round, which pits Le Pen against her leading rival Emmanuel Macron, a centrist former economy minister. Additionally, French centrist Francois Bayrou said on Wednesday to offer an alliance with Macron to help him reach the runoff in May’s election. Bayrou’s support for Macron pushed the French bond yields to fall 5 basis points.
The Bund yields hit record lows, as within the 19-nation Eurozone, investors always rush into strong members like Germany whenever a risks of a breakup of the currency emerge. The gap between French and German 10-year borrowing costs reached the widest point since May 2012.