Friday, December 9, 2016

Investors Worry About French Political Risk

Despite polls assuring that a Le Pen victory remains highly unlikely, investors have become wary of French sovereign debt. The spread between French and German bonds has increased by 10 basis points since September. The anxiety in the bond market is focused primarily on the outside chance of a Le Pen victory next way. But there is also political risk in a "safe" Fillon win, which would pose less of a threat of Frexit than a Front National victory but conceivably more of a threat of widespread worker resistance to Fillon's proposed overhaul of the French social safety net, including drastic modification of both the pension and health insurance system, as well as labor law reform. Given the massive demonstrations against the Macron and El Khomri laws, these fears are not exaggerated.

1 comment:

bernard said...

Frankly speaking a 10 bp spread move on the 10Y since September is very small beer in my (very long) experience of financial markets. Suffice it to say that back in 1995, I predicted a 90 bp move due to the failure of Balladur and the coming election of Chirac (both predictions came to pass). So, ok, exchange rates could still move then (and did) but, still, 10 bp, that's just noise.