PARIS: The volume of French government bonds changing hands has doubled this month, as uncertainty surrounding the upcoming election has lifted the premium investors demand for holding French over German debt to its highest in four years, figures showed.
According to details, activity in French corporate bonds has been just as frenetic, with average daily volume so far in February on track to break January’s record, according to Trax, a subsidiary of MarketAxess.
Average daily trading volume for French government debt so far this month stands at 16.5 billion euros, Trax figures show. That’s up 47 percent from January’s average of 11.2 billion euros, and double the daily average of 8 billion euros over the past year. January’s total volume was 236.1 billion euros, up 40 percent from the monthly average last year, Trax said.
French bonds have underperformed Italian, Spanish and German bonds so far this year, according to Goldman Sachs analysts. The 10-year yield spread over ultra-safe German bonds nudged 80 basis points this month, the highest since November 2012.
Investors are nervous that far-right leader Marine Le Pen could win this spring’s election. She is running on a platform of populism and protectionism, and has pledged to take France out of the euro.
Bank of America Merrill Lynch’s latest survey of global fund managers published on Tuesday showed that 36 percent of those polled said euro disintegration risk from Europe’s election calendar this year posed the biggest tail risk event for global markets. “We recommend a cautious approach for now, but we believe idiosyncratic concerns about French politics are getting overblown,” Societe Generale rates strategists said in a note.
In French corporate bond trading, average daily volume last month hit a record 1.2 billion euros, Trax said. So far this month, average daily volume stands at 1.4 billion euros. Trax provides post-trade services for around two-thirds of all fixed-income transactions in Europe.