Borrowing costs in France rise after Marine Le Pen’s election victory

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

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

They also rose in Germany, Italy and the UK amid fears that overspending by Le Pen’s National Rally (RN), if it comes to power, could trigger a debt crisis in the heart of Europe.

The turmoil in bond markets came as investors endured a roller coaster ride in other sectors.

Stock markets and the euro posted sharp gains in early trading on signs that Le Pen may fail to secure an outright majority in Sunday’s runoff election.

Kathleen Brooks, head of research at broker XTB, said: “A hung parliament could make it difficult to get anything done in France in the current parliament, which is exactly what markets would like.”

But stocks and the single currency later gave back some of their early gains as investors grew concerned about the likely outcome, with analysts warning of further turbulence in the days ahead.

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

The CAC 40, the main benchmark index on Paris’ Euronext exchange, rose as much as 2.8 percent in early trading yesterday on hopes that Le Pen would miss her targets, but ended the day up 1.1 percent.

The euro rose as high as $1.0776 against the dollar and 84.98 pence against the pound before falling.

“If President Macron’s aim was to strengthen his majority by calling new elections, his gamble has failed miserably,” said Philippe Ledent, another economist at ING.

‘Marine Le Pen’s party remains the most likely to secure an absolute majority, but the die is far from cast.’

Le Pen’s RN party won 33 percent of the vote in the first round of elections held on Sunday. The leftist New Popular Front won 28 percent and Macron’s ruling coalition came in third with 22 percent.

“We have a situation between a hung parliament and a far-right government, so neither of them is particularly attractive,” said Marija Veitmane, senior strategist at State Street Global Markets.