Source: Bloomberg
Bond investors may increase interest rates on French government bonds in the next few years, and regime change may have a profound impact on the second largest economy in Europe.
Even though Le Pen's National Alliance failed to obtain an absolute majority in the upcoming vote, Zurich Insurance and Neuberger Berman said that the market will continue to require higher yields when purchasing French Treasury bonds.The French Industrial Bank and other institutions predict that the pressure on the political situation will last until the Presidential Election in 2027.
Since Macron has decided to hold parliamentary elections in advance, the difference in yield difference between 10 -year Treasury bonds in France has risen by more than 30 basis points. It has stabilized at a level of slightly lower than 80 basis points.It was still more than ten years ago during the sovereign debt crisis of the euro zone.
Guy Miller, chief market strategist of Zurich Insurance, said, "I just think that the spread of French bonds will not return to the past."
There are two driving factors for the market re -pricing.Learong's leadership of the National Alliance is far ahead in polls. Although the French debt burden is increasing, the National Alliance still respects some budget measures that consume funds.However, in recent days, some of the party's commitments have converged to get more support in economic issues.
Another factor is the market's concerns. At least to a certain extent, worrying about the rise of extremely right -wing forces will destroy the relationship with the European Union, one day challenges the survival of the euro zone.
Whether the yield of French bonds may have a profound impact on the economy at a higher level.The French Ministry of Finance estimates that the increase in debt issuance will make the government spend 800 million euros ($ 859 million) per year.If this level continues, the cost of each year in five years will increase by about 4 billion to 5 billion euros, and will increase by 9 billion to 10 billion euros in ten years.
The French Industrial Bank warned that even if Macron's party accidentally obtained a majority of parliament in the next few weeks, this risk premium may continue.The enhancement of extreme right -wing forces may still complicate the legislative process and hinder reform.
Even in the "best scene" of the market, that is, the majority of Macron political parties occupy the majority, "the special premium of French bonds may shrink, but it will not completely disappear," said Adam Kurpiel, the head of interest rate strategy of the French Industrial Bank.
He added that in this case, France's spread may narrow than Germany, but it will not be less than 50-55 basis points. If the National Alliance wins, the spread may be at 75-90 basis points.Find a new balance in the area.
