French Government Bond Yields Hit Highest Levels Since 2015

Talking Points

- The yield on the benchmark 10-year French government bond climbed to its highest level since September 2015

- GDP data were in line with expectations but politics dominate the market ahead of this year’s Presidential election

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

The yield on the 10-year French government bond, or OAT, hit a high of 1.094% Tuesday before easing back. While economic growth data were in line with forecasts, political concerns are rising ahead of this year’s two-stage Presidential election on April 23 and May 7.

The figures from INSEE, France’s statistics agency, showed GDP growth of 0.4% quarter on quarter in the final three months of last year thanks to buoyant consumer spending and corporate investment. That was in line with forecasts and compared with growth of 0.2% in the previous three months. Year on year growth was also in line with expectations at 1.1%, down from 1.2%.

In the markets, though, the numbers had little impact as nervousness climbed in the run-up to the election. The ruling Socialist Party has chosen left-winger Benoit Hamon as its candidate in a move likely to boost the chances of winning for Emmanuel Macron, an independent.

They will be up against both the far-right candidate Marine Le Pen of the National Front and the Republican Francois Fillon, who has been interviewed by French police along with his wife Penelope over claims she was paid for fake work. These two are still expected to go through to the second round once Hamon and Macron are eliminated in the first, and the choice of Hamon as the Socialist candidate could improve the chances of Le Pen as well as Macron.

Le Pen is seen as unfriendly by the markets as she is anti-immigration and has talked of France abandoning the euro. The 10-year French government bond yield was recently at 1.056% while the CAC40 index of Paris-listed shares was up 0.5% at 4808.59.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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