By 3 Min Read* Government bond yields in the Eurozone’s periphery tmsnrt.rs/2ii2Bqr (Recently updated with a new comment and a graph) (Reuters) – LONDON, June 28 (Reuters) – Bond yields in the euro zone fell on Monday, with news that France’s extreme right failed to win a single area in weekend elections providing some respite to bond investors. The far-right Rassemblement National (RN) had hoped to establish its first regional power base in Sunday’s elections in southern Provence-Alpes-Cote d’Azur, but other parties banded together to keep it out. While the results denied RN leader Marine Le Pen the opportunity to demonstrate that her party is ready for power ahead of next year’s presidential election, they also indicated no victories for French President Emmanuel Macron’s party. The yield on France’s 10-year bond decreased roughly 2 basis points to 0.18 percent, narrowing the spread over German Bund rates to 34 basis points (bps) from 35 bps late Friday. ING senior rates strategist Antoine Bouvet said, “I observe a modest tightening of French bonds versus Germany this morning, nothing out of the ordinary.” He speculated that one explanation could be because the results reaffirmed the far right’s poor showing from the first round, as well as “good results” for the centre right. Les Republicains have proposed a three-horse contest for the presidential election in April, rather than a two-horse competition. “This might mean that two centrists make it to the runoff, or it could mean that centrist votes are more split in favor of Le Pen,” Bovet added. “I’m tempted to take the more optimistic view, but it’s difficult to make definite conclusions, and the lack of market reaction shows I’m not alone.” As investors awaited this week’s flash euro zone inflation figures and the US non-farm payrolls report, most 10-year bond yields fell somewhat. Germany’s benchmark 10-year Bund yield was about -0.21 percent, down a basis point. Morgan Stanley’s head of European economics, Jacob Nell, predicted a gradual increase in bond yields, led by US Treasuries. “Yields will follow the US higher to a lesser extent in Europe, where we forecast lower inflation and a dovish ECB (European Central Bank) that continues to buy bonds,” he said. Bond rates may be pushed higher by a large week of bond supply. According to ING, Belgium, Italy, Spain, and France may provide more than 30 billion euros ($36 billion) in scheduled supply. The highlight, according to analysts, was further issuance by the European Union to fund the bloc’s recovery fund. (1 dollar = 0.8376 euros) Dhara Ranasinghe contributed to this report. Kirsten Donovan and Mark Potter edited the piece. Continue reading
