Investors specializing in government bonds, who have not forgotten the fluctuations in French debt yields before the 2017 presidential election, will monitor the results of the National Rally (RN) in the regional elections to try to assess the probability of a victory for Marine Le Pen in the race for the Elysee Palace next year.
The polls of June 20 and 27 could notably allow the RN to win the Provence-Alpes-Côte d’Azur region, which would be a first for the far-right party and would favor, in the eyes of political scientists, the candidacy of the president. of the party for the presidential election.
In 2017, many analysts explained the rise in euro area government bond yields, among other things, by Marine Le Pen’s stated desire to abandon the euro and question France’s membership in the European Union.
Since then, the head of the RN has moderated her Euroscepticism and is no longer campaigning for the abandonment of the single currency. But investors believe that his opposition to closer integration within the EU remains a handicap for French debt in the markets.
“Clients let us know that they are worried about France and that they are less interested in OATs at the moment”, explains Jolien van den Ende, rate strategist of ABN AMRO, concerning the bonds of the French treasure.
A victory for the RN in one or more regions on June 27 would risk reinforcing investors’ unease, believes Sebastian Paris Horvitz, research director of La Banque Postale Asset Management in Paris.
THE GAP WITH GERMANY RISK OF DIGGING
The yield on OATs on the secondary market, a barometer of the cost of financing the public debt, has increased by 53 basis points (0.53 percentage points) since the start of this year, and the gap with that of the German Bund s ‘is widened by 11 basis points.
Goldman Sachs estimates that this “spread” could increase by 25 to 35 basis points by the presidential election in May 2022 and that those of Italy and Spain compared to Germany could also widen by 20 at 30 points, as in 2017.
Given the evolution of Marine Le Pen’s political positioning in Europe, volatility on French debt should not be as high as in 2017, when the Franco-German spread peaked at nearly 80 basis points.
However, Erjon Satko, rate strategist of BofA in Paris, explains that some traders concerned about the degraded popularity of Emmanuel Macron in the polls are already developing strategies for the presidential election next year.
Mike Riddell, fund manager of Allianz Global Investors, favors German debt to the detriment of the French.
“I would say that the spreads do not take into account this risk for the moment (of a victory for Marine Le Pen in 2022)”, he said.
“There is no doubt that if Le Pen won (…) it would cause a shock of volatility, for France in particular but for the euro zone in general.”