LONDON: Euro zone government bond yields fell slightly on Wednesday, while the risk premium that investors demand to hold French bonds held steady as investors watched political developments in France.
The gap between France’s and Germany’s 10-year yields stood at 73 basis points (bps), up less than 1 bp from the day before but down from the more than 80 bps reached last week.
The spread has widened from below 50 bps since French President Emmanuel Macron called a snap election this month in response to a strong showing for far-right parties in the European Parliament election.
With Marine Le Pen’s National Rally leading in the polls but looking set to fall short of an outright majority, the risk of a hung parliament has investors worried about France’s debt path and fiscal situation.
France, along with Italy, is expected to be named as one of the countries in the European Union’s Excessive Deficit Procedure later on Wednesday, requiring it to reduce its structural deficit.
Germany’s 10-year bond yield, the euro zone’s benchmark, stood at 2.375%, down 1.5 bps on the day.
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France’s 10-year bond yield was down less than 1 bp to 3.117%, having spiked as high as 3.338% last week.
Italy’s 10-year yield, the benchmark for the euro zone’s more indebted countries, was steady at 3.885%.
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