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The German bunds gained Monday as investors showed higher buying preference in exchange for the sale of French bonds after the significant victory of Far Right candidate Emmanuel Macron in the overnight French elections.
The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 0.41 percent, the long-term 30-year bond yields slipped 1/2 basis point to 1.19 percent and the yield on the short-term 3-year bond traded nearly 1 basis point lower at -0.62 percent by 09:30 GMT.
Macron has convincingly won France’s second-round presidential elections by 65 percent of the vote, while the EU-sceptic Le Pen obtained 35 percent. At only 39 years of age, Macro is the youngest French president, and his victory speech focused on defending and reviving Europe. This is an important outcome for markets, especially because after the Brexit vote on 23 June 2016, economic data and central bank communication has been clouded by geopolitical risks, and more recently French election risks.
Anti-Europe Le Pen’s loss will certainly calm down markets from a geopolitical risk front and could be the end of right-wing populism. The focus will now swing back to the Fed following last week’s rate decision which kept rates unchanged while downplaying the weak Q1 2017 economic growth as transitory. Fed funds futures are currently pricing in 83 percent probability of a June hike.
Lastly, German Chancellor Angela Merkel’s party won a state election in the northern region of the country, according to projections based on exit polls, handing her Social Democratic challengers their second straight defeat at the polls before the nation votes in September.
Meanwhile, the German stock index DAX Index traded 0.18 percent lower at 12,697.25 by 08:40 GMT, while at 08:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -44.52 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
