Felix Feather, economist at abrdn:
“We think French government bonds will increasingly behave more like “peripheral” rather than “core” assets. While this distinction does not have quite the bite it once did during the euro crisis, when the ongoing membership of the Eurozone seemed like an open question for many peripheral countries, it does mean that French bonds are likely to trade with greater volatility, pro-cyclicality, and persistently wider spreads to Germany.
This is a result of the strained fiscal position France found itself it even before a snap election was called, and the likelihood of a prolonged period of political instability and unpredictability following the upcoming vote. Crucially, however, the ECB’s credibility and toolkit should stop any turmoil in French bond markets being spread into a sustained period of weakness into other European markets. In other words, France’s status as a peripheral country does imply contagion to other peripheral markets.”
