French voters head to the polls this weekend with at least one material benefit from President Francois Hollande’s three-week-old reign: record low borrowing costs.
The yield on France’s benchmark 10-year bond slid last week to an all-time low of 2.07 percent. The spread with equivalent German securities has narrowed to 110 basis points from 142 when Hollande took office on May 15. The government took advantage of the drop by selling today 7.84 billion euros ($9.9 billion) in debt, including 50-year bonds for the first time since 2010.
Hollande has stuck to his pledge to shrink France’s budget gap while gaining from predecessor Nicolas Sarkozy’s record of repeatedly beating the nation’s deficit-cutting targets. For bond investors, the combination has put France — which was stripped of its AAA rating by Standard & Poor’s in January — in the league of Europe’s creditworthy north rather than its struggling south.
“What we’ve seen is investors becoming more comfortable with French risks,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. “We are happy not to short France anymore.”
French voters choose lawmakers for the National Assembly in two rounds of voting on June 10 and June 17. Hollande’s Socialist Party probably will win the largest bloc of seats, although it may have to rely on other parties for a majority, according to an OpinionWay poll taken June 4 and June 5.