LONDON: France's 10-year government bond yield dropped to its lowest since November 2016 on Tuesday as the effect of the country's "yellow vest" protests faded. Broader euro zone yields fell on monetary policy expectations.

Support for the "yellow vest" movement is waning, and French President Emmanuel Macron's popularity has recovered to levels not seen since the protests broke out in mid-November, a poll showed this week.

In addition, a survey showed that French consumer confidence jumped in February as unemployment fears receded, reinforcing last week's strong purchasing managers' index.

"What markets are starting to realise is that Macron seems to be quite stable in his saddle now and the 'yellow vest' effect is starting to fade," said DZ Bank rates strategist Christian Lenk.

"The move (in French yields) is also in line with the idea that investors are looking for a pick-up with Bund yields so low, and the French curve at the long end in particular seems to be quite attractive."

Most euro zone yields fell on Tuesday, but French bonds outperformed, with 10-year yields dropping to 0.506 pct , down nearly 2 bps on the day and the lowest in 27 months.

Last week, France sold 7 billion euros of 30-year bonds, getting orders for more than five times that amount.

"There seems to be some stabilisation: the phase where activity deteriorates might be over, giving hopes to the market the effect of the protests might fade,"  Mizuho strategist Antoine Bouvet said.

"But we should remember these are sentiment indicators, which tend to recover quickly, not hard data. So I would be a little cautious."

German 10-year yields, the benchmark for the region, were hovering around the 0.10 percent mark, slightly lower on the day.

Later in the day, Federal Reserve chair Jerome Powell will testify to the U.S. Senate, and markets will look for signs interest rate increases will resume later this year and the policymakers will stop running down the central bank's balance sheet.

Elsewhere, Spain opened a 15-year bond sale through a syndicate of banks. It got over 26 billion euros of interest in early marketing, according to International Financing Review.

Copyright Reuters, 2019
 

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