A Le Pen upset win would spark selloff in French bonds, euro -fund managers

div classBodysc17zpet90 cdBBJodivpBy Lisa Pauline Mattackal and Sanjana Shivdasp

pReuters – Investors have discounted Marine Le Pen winning the French presidency on Sunday, so an upset would cause a selloff in French government bonds and dent the euro, fund managers and economists told the Reuters Global Markets Forum.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pPolls on Thursday showed President Emmanuel Macron with a lead of between 55.5 and 57.5 for the runoff vote after a prickly debate between the centrist incumbent and the farright challenger.p

pThe Reuters Global Markets Forum interviews were conducted on Thursday and Friday.p

pThe European Union would not be able to make necessary reforms or joint fiscal efforts without the support of France, which would push the euro lower, said Dean Turner, chief euro zone and UK economist at UBS Global Wealth Management.p

p“She will not be an easy partner to work with,” Turner said.p

pVincent Mortier, group chief investment officer at Europes largest asset manager Amundi, gives Le Pen winning a minimal chance. He predicted that French government debt spreads would widen by 50 basis points, equities fall by 10, and the euro lose about 3 against the dollar if she wins.p

pA Le Pen victory could see the dollar rise to 1.065 euros from Fridays 0.9257 euro, while a Macron reelection would provide mild upside to the single currency, analysts at Citi wrote.p

pHer proposals to fight inflation have boosted her campaign, but analysts say pledges such as cutting taxes on energy and nationalising motorways would weigh on Frances already stretched public finances.p

p“There‘s no room anymore for fiscal easing,” said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management, adding that Le Pen’s programme would lead to a surge in public deficit and widening yield spreads.p

p“Independent analysis of her proposals suggest her policies might end up costing around 75 more than she has estimated,” said Jessica Hinds, senior Europe economist at Capital Economics.p

pA Le Pen presidency would hold significant risk of diverging bond yields among the different governments in the currency union, said Holger Schmieding, chief economist at Berenberg Bank.p

pIn this scenario, Hinds would expect a selloff in French bonds comparable to that of Italian bonds in 2018, when the LegaFive Star coalition government was elected.p

pThe gap between Italian and German 10year government bond yields blew out then by some 200 basis points.p

pAs polls have showed Macron extending his lead, the gap between French and safer German 10year bond yields has narrowed..p

pEdmond de Rothschild has an “underweight” position in European equities and euro zone sovereign bonds, primarily due to the war in Ukraine and expectations of monetary policy tightening from the European Central Bank, Melman said.p

pAmundi is also underweight on euro zone government debt, but Mortier said a Le Pen victory would have “some consequences” on his funds allocation.p

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pp These interviews were conducted in the Reuters Global Markets Forum chat room on Refinitiv Messenger. Join GMF: https:refini.tv33uoFoQ Reporting by Lisa Pauline Mattackal and Sanjana Shivdas in Bengaluru Editing by Divya Chowdhury and William Mallardp

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