On February 7th, France’s Finance chief Michel Sapin, trying to stem the rise in French borrowing costs in recent weeks, on uncertainty regarding the outcome of the upcoming French election, warned traders who were betting against the Euro and betting a on victory by Marine Le Pen, – they are guaranteed to lose a lot of money. ‘Those who, in good faith or by speculation, bet against France because they think Le Pen can win are not only wrong, but I’ll be frank: they will lose a lot of money. I don’t know where the government bonds yield spread will be by April, maybe higher, but you’ll have a very, very quick drop after the presidentials,’ he said.
Uncertainty about the outcome of the election, taking place in two rounds on April 23 and May 7, has lifted the premium that investors demand for holding 10-year French bonds over German Bunds to 75-basis points last week, its highest for almost four years. Sapin, a French political veteran, said some investors didn’t seem to understand the French electoral system, which he said would guarantee anyone facing Le Pen in May’s runoff an easy victory with about 60% to 70% of votes. ‘That’s the reason why Marine Le Pen will never be elected in France,’ he told a group of European journalists.
Even though Le Pen looks certain to reach the head-to-head second round, all opinion polls show she will be soundly beaten by whoever she faces, with independent centrist Emmanuel Macron, currently in top poll position to defeat her. Sapin said observers were wrong to draw parallels with Britain’s decision to leave the EU and Donald Trump’s election in the US, which had both caught markets off guard. ‘Saying: ‘since we were wrong once, wrong twice, we’re wrong on Le Pen’ is to not understand anything about France.’
This post was published at FinancialSense on 02/21/2017.