RBC BlueBay strategist Mike Bell said French bond yields will depend on whether presidential candidates, particularly Marine Le Pen, support raising the retirement age. The French-German 10-year bond spread could reach 200 basis points if a candidate opposing an increase appears likely to win.
Bell said investors want the likely presidential election winner to support raising the retirement age, and that without such a policy, pressure on French borrowing costs could build. He said the premium investors demand to hold French 10-year bonds over German bonds could reach 200 basis points if a candidate who would keep the retirement age unchanged looks likely to win. The spread rose above 150 basis points last Friday, its highest since late 2011.
Le Pen has previously backed cutting the retirement age to 60 for people who started their careers early. She outlined much of her budget plan on Tuesday but left pension reform details for the coming weeks. Bell said a Le Pen victory could set up a clash with the European Central Bank over fiscal rules; the ECB’s bond-buying backstop is available only to countries that comply with EU fiscal rules, he said.
