French Bonds Sell Off Continues as Le Pen's Odds Shorten
February 17 2017 - 8:41AM
Dow Jones News
By Mike Bird
Government bonds in France and southern Europe sold off again
Friday, with fresh data showing that foreign investors continue to
dump French debt ahead of the country's presidential election.
The spread between French and German 10-year yields widened from
0.66 percentage point on Thursday to 0.73 percentage point on
Friday. French bonds are now trading in the same direction as those
of the southern European countries whose debt was hit hardest by
the euro sovereign debt crisis.
Bonds sold off in Italy, Spain, Portugal and Greece Thursday.
Investors moved money into German debt, with the yield on its
10-year government bond falling to as low as 0.3%, down from 0.35%
Thursday.
During the sovereign debt crisis investors were concerned that
some countries could end up leaving the eurozone, questioning the
single currency's existence.
Concerns for the currency block are increasing once again as
betting odds rise for an election victory for Marine Le Pen, the
leader of the far-right National Front who has promised to take
France out of the eurozone. Betfair now gives Mrs. Le Pen a 28.6%
chance of becoming the president of France, up from 20.3% at the
beginning of February.
While former economy minister Emanuel Macron remains favorite in
the presidential race, foreign investors aren't taking the risk
even as locals funds remain more sanguine.
Foreign-based investors sold EUR30 billion ($31.95 billion) in
French bonds during the last three months of 2016, the most in two
years, according to European Central Bank data released Friday.
Survey data suggests international money managers invested in
other French markets are also getting nervous. Bank of America
Merrill Lynch's regular survey of fund managers showed sentiment
toward French stocks among global investors at its lowest level in
two years. That shift comes even as investors generally warm toward
eurozone equities.
"The two SHYround French [election] system means anti- Le Pen
voters can rally round a single alternative in the final round and
therefore she needs more than a lead in the polls, she needs a
majority, to win the presidency," said Tomas Hirst, analyst at
CreditSights.
But "markets are understandably wary of being caught out as they
were with the Brexit and Trump votes last year," he added.
Investors are also currently grappling with a more familiar
problem for the eurozone, as Greek bonds also sold off Friday.
Athens is again embroiled in a tussle with international creditors
over the terms of its bailout. Yields on 10-year Greek bonds rose
from 7.9% Thursday to as high as 8.1% Friday.
Write to Mike Bird at Mike.Bird@wsj.com
(END) Dow Jones Newswires
February 17, 2017 08:26 ET (13:26 GMT)
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