Investors struggle to price French assets in response to political limbo

French stocks and government bonds struggled to find direction Monday following surprise results in France’s parliamentary elections, which saw left-wing parties outperform the far right, leaving the country’s parliament facing gridlock.

French stocks and government bonds struggled to find direction Monday following surprise results in France’s parliamentary elections, which saw left-wing parties outperform the far right, leaving the country’s parliament facing gridlock. The yield on benchmark 10-year bonds rose by a fraction of a percentage point to 3.21% by 6.37 a.m. ET. But the premium traders demand to hold French bonds instead of the ultra-safe German equivalents was lower on the day. However, it was still a lot higher than before French President Emmanuel Macron called the snap elections on June 9. Analysts at Rabobank said uncertainty over the composition of the next government was likely to keep that risk premium, or the spread, at “elevated levels” compared with before Macron announced the snap elections. France’s left-wing alliance came in first after the vote Sunday, while the far right trailed in third place in a shocking reversal of first-round results. But with the left falling short of the 289 seats needed for a majority and with a weakened president, the national assembly is expected to be more fractured than ever. France is now set for a prolonged period of instability as three opposing blocs with competing ideas and agendas try to form a coalition or find themselves stuck in a state of paralysis. “The so-called ‘Republican Front’ whereby parties co-operate to block the far right’s ascendance to power proved remarkably successful but leaves the parliament split,” the Rabobank analysts wrote in a note Monday. “We are now likely looking at a period of policy paralysis.”