Mark Preskett: April's French presidential elections are being seen as the next political event that could unsettle global financial markets. The polls are close, they have independent candidate, Emmanuel Macron, narrowly ahead of far-right leader Marine Le Pen and most experts have the two facing off for the presidency in the second round of voting in May. Macron's pro-market and pro-Europe policies differ radically to Le Pen's, who has vowed to take France out of the EU if she wins.
How is this affecting bond markets? Well, the yields on French government bonds have risen during the election campaign and are now trading at a 60-basis-point premium to their German equivalent debt. In our view, these spreads are still quite tight given the risks of a Le Pen win or a surprise from one of the far-left candidates like Melenchon. Investors are clearly relatively relaxed about a Macron win, although we are seeing some short selling in the French government bond futures market by hedge funds.
For our European portfolios at Morningstar, we see Eurozone government debt as a low conviction asset class. Yields are low and we much prefer the surety of cash than taking significant sovereign risk in Europe.