French borrowing costs rise as Marine Le Pen wins election

Borrowing costs across Europe soared yesterday after Marine Le Pen crushed Emmanuel Macron in the first round of France’s parliamentary elections.

The yield on French 10-year government bonds – a key measure of how much it costs the government to borrow – hit 3.35 percent for the first time since November last year.

Voting also rose in Germany, Italy and the UK amid concerns that Le Pen’s Rassemblement National (RN) will spend extra money if it comes to power, potentially triggering a debt crisis in the heart of Europe.

The turmoil in the bond markets came as investors elsewhere experienced a rollercoaster ride.

Stock markets and the euro posted strong gains in early trading as indications mounted that Le Pen might not secure an outright majority in Sunday’s second round of voting.

Kathleen Brooks, research director at broker XTB, said: “A parliament without consensus could make it difficult to get anything done in France in the current parliament, which is exactly what the markets want.”

But stocks and the common currency later gave up some of their earlier gains as investors worried about the likely outcome, with analysts warning of further unrest in the coming days.

“The markets are heading into another week of great uncertainty, probably fear, as it is still possible that RN will obtain an absolute majority,” said Carsten Brzeski, economist at Dutch banking group ING.

The Cac 40 – the main benchmark on the Euronext exchange in Paris – rose as much as 2.8 percent in early trading yesterday on hopes that Le Pen will fall short. But the day ended up 1.1 percent.

The euro rose to $1.0776 against the dollar and 84.98p against the pound, before declining.

“If President Macron wanted to strengthen his majority with new elections, his gamble has backfired,” said Philippe Ledent, also an economist at ING.

‘Marine Le Pen’s party still has the best chance of winning an absolute majority, but its fate is far from decided.’

Le Pen’s RN won 33 percent of the vote in the first round of the election on Sunday, with the left-wing New Popular Front taking 28 percent and Macron’s governing coalition in third place with 22 percent.

“You have a situation between a parliament with a power imbalance and a far-right government, so neither is really attractive,” said Marija Veitmane, senior strategist at State Street Global Markets.

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