Goldman Downgrades French Bonds Ahead Of Elections

Roughly at the same time as today’s French election narrative shifted again as traders started paying attention to the suddenly surging in the polls far-left candidate Jean-Luc Melenchon, which pushed the Euro to the lowest level in a month, Goldman has come out with a recommendation to short June OAT futures (OATM7) at 147-72, for an initial target of 144.00, and stops on a close above 150.00,
In the note, Goldman’s Francesco Garzarelli writes that a victory by a moderate reformist presidential candidate (Fillon, Macron), which is the base case at the bank, would result in a narrowing of French bond spreads but may be offset by a selloff in core rates. He writes that the ‘fair level’ of 10-year spread to bunds is in the region of 30bp-40bp, from 70bp currently, according to Goldman
The bank adds that it expects French bond spreads and yields to come under upward pressure if the first round of election were to result in a strong showing of anti-establishment candidates (Le Pen, Melenchon), while by contrast, U. S. Treasuries may instead rally on the event, on the back of flight-to-quality flows.

This post was published at Zero Hedge on Apr 10, 2017.