French stocks and government bonds faced uncertainty on Monday following surprising outcomes in France’s parliamentary elections. Left-wing parties outperformed the far right, leading to a potential gridlock in the country’s parliament.
The yield on benchmark 10-year bonds in France saw a slight increase to 3.21% by 6.37 a.m. ET. The spread between French bonds and German equivalents, although lower than before, remained elevated since President Emmanuel Macron announced the snap elections on June 9.
Analysts from a Dutch multinational banking and financial services company noted that the uncertainty surrounding the formation of the next government is likely to maintain the risk premium at heightened levels. The left-wing alliance secured the top position in Sunday's vote, while the far right fell to third place, resulting in a fractured national assembly.
With no party reaching the 289-seat majority threshold, France is bracing for a period of instability as competing blocs attempt to form coalitions amidst a weakened presidency. The analysts highlighted the success of the 'Republican Front' in blocking the far right but cautioned that the parliament is now divided, potentially leading to policy paralysis.
France’s CAC 40 index, representing the largest companies listed in Paris, showed a 0.35% increase by early afternoon, reversing earlier losses. Since the snap elections were announced, the index has declined by 3.7%.
The euro experienced a slight dip against the US dollar, reflecting the ongoing volatility in the currency shared by 19 EU countries since June 9.
