LONDON May 7 French government bonds are likely
to benefit in the short term from centrist Emmanuel Macron's
presidential win, but could underperform over the medium term as
focus shifts away from politics, Franklin Templeton's David Zahn
said on Sunday.
Macron was elected president of France on Sunday with a
business-friendly vision of European integration, defeating
Marine Le Pen, a far-right nationalist who threatened to take
France out of the European Union.
"Macron's widely predicted victory should be positively
received by markets, at least in the short term," Zahn, Franklin
Templeton's head of European fixed income, said in a note.
"However, very quickly, we expect pressure to build on
Macron to outline exactly how he intends to govern. So far we
have only a very rough sketch of what he's planning to do."
Zahn said that much will depend on the results of June's
parliamentary elections, adding that there has been little in
Macron's manifesto that would suggest he could bring down
France's deficit significantly or stem its high debt-to-GDP
"That is not good for long-term French fundamentals. But
over the medium term, we'd expect French government bonds could
probably begin to sell off once people finally synthesise the
full implications of the Macron victory," he said.
"At the moment, politics are driving the markets. Once
investors see through that, I think there could be an
underperformance in French government bonds."
Given that France has a large current account deficit and
high debt levels, the gap between French and German bond yields
could trade wider, he said.
(Reporting by Dhara Ranasinghe; Editing by Angus MacSwan)