French Bonds and Shares Volatile Post-Election

French Bonds and Shares Volatile Post-Election

Following the recent elections in France, which resulted in a hung parliament, French government bond yields briefly traded at their lowest premium to German debt in almost a month before reversing course. The yield on France's benchmark 10-year bond increased by 3 basis points to 3.244%, retreating from a high of 3.37% last week. German 10-year debt remained stable at 2.536%, widening the gap between French and German yields by 3.25 basis points to 71.15 basis points. Commerzbank rates strategist Rainer Guntermann indicated that the risk of political gridlock due to the hung parliament might make the early rally in French bond prices unsustainable.

The election outcome has led to concerns about potential delays in essential economic policies and their broader impact on the Eurozone. The French stock market also reacted negatively, with the country's blue-chip index dropping 0.6%. Investors are worried that the divided National Assembly, which now includes significant representation from the left, centrists, and the far right, could complicate governance and undo many of President Emmanuel Macron's pro-market reforms. The left's plans, in particular, could potentially increase spending and hinder efforts to reduce France's debt, further affecting investor confidence.

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