LONDON (Reuters) -French stocks, bond prices and the euro rallied on Tuesday, after Prime Minister Sebastien Lecornu suspended a landmark 2023 pension reform until after the 2027 presidential election, bowing to pressure from leftist lawmakers.
French government borrowing costs extended the day’s decline, leaving the yield on the benchmark 10-year OAT down 6.2 basis points at 3.404%, from around 3.42% earlier, at its lowest since early September.
This left the premium to German Bund yields, a measure of demand for French debt, at 80 basis points, down from last week’s high of 88 bps, but still elevated.
The euro flipped into modestly positive territory, while stocks in Paris, led by a rally in banking stocks, cut some losses, to trade down 0.2% on the day, compared with a 0.4% loss in the STOXX 600.
COMMENTS:
JUAN PEREZ, DIRECTOR OF TRADING, MONEX USA, WASHINGTON:
“I think anything that will bring some relief to the back-and-forth within the French parliament is an absolute win.
Pension is very complicated and a major point of discord amongst policymakers as it represents the most important elements of the welfare state. If other items take priority and they can agree on a budget while agreeing to some tax increases, the markets will certainly see it as a positive step after the political crisis in the EU’s second largest economy brought the value of euro by 2.5% in the last four weeks.”
EMMANUEL CAU, HEAD OF EUROPEAN EQUITY STRATEGY, BARCLAYS, LONDON:
“For France there’s definitely better sentiment.. given the fact that we avoided the worst case scenario meaning dissolution. But we’re not seeing excitement, there is caution regarding this segment … France is the only major EU country seeing massive outflows.
On top of that, when you look at the OAT spread, it is still trading around 80 meaning it is embedding some French political risk premia, it has been opening since the June (2024) snap elections. It’s definitely not an area where people are complacent, and this will continue.
When you look at domestic names in France like banks or a couple of industrial names that have been doing amazingly well this year …(they) have been decoupling a lot with French political risk .
JANE FOLEY, HEAD OF FX STRATEGY, RABOBANK, LONDON:
“There’s not the same danger with the euro that international investors might walk away and sell as there is with say the pound which depends on the kindness of strangers.
We saw the euro react a little last week to the French news but that was really a case of the market being very long euro and short dollars and the repositioning was going to happen on really any news trigger.”
(Reporting by Alun John and Lucy Raitano in London and Gertrude Chavez in New York; Editing by Amanda Cooper)
