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France, Front and Centre

20 February 2017 by lberuti

In the absence of the US, it was a somewhat expectedly low volume session. Once again, most of the action come from sovereign bonds. We saw some widening in credit indices mid-morning on the back of the OAT/BUND spread breaking out to 84bps – that is the widest it has been in 4 years -, as the latest French polls confirmed Mrs Le Pen’s lead in the first round of the presidential election and showed her closing the gap in the second round. Investors pushed iTraxx Main to 74.75bps, iTraxx Financial Senior to 94bps and iTraxx Crossover to 300bps. But that spike was short lived, and as the OAT/BUND retraced almost of its move to settle at 76bps, credit indices did the same and they all closed unchanged on the day across the board. The 5-year risk premium of France found it a bit harder though, and widened 5.5bps to 68.5bps – Germany and the UK are trading at 25bps and 30bps respectively -. That is the widest it has been since the European sovereign crisis in 2011-2012.