The euro jumped by 1% this morning against the US dollar to 1.0836, while defensive assets dropped. Gold declined from US$1285 on Friday to US$1271 this morning, while 10-yr Treasury yields rose from 14bps to 2.3%.
After the second round of the presidential elections, the next decisive step for France will be to elect the Parliament in a month and a half from now. It is still unclear how Macron will win a clear political majority without joining forces with both the Socialist and Republicans groups.
The uncertainty around the ability of Macron to gain a majority of seats in the Parliament to pass on his reforms will likely continue to weigh on the French-German government bond spreads in the next 6 weeks. We believe in a gradual tightening of the spreads in the weeks to come.
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