Halister News

(Bloomberg) -- While victory of France’s far-right Le Pen in presidential elections appears more probable than markets price in, French assets are still attractive on a relative basis as near-term risks are bigger elsewhere, Morgan Stanley strategists including Elaine Lin write in client note.

• Traditionally, French elections haven’t required a sustained widening risk premium of French assets; this time political risks are higher
  • Risk of a protest vote is material, as macroeconomic background may increase risks, while Brexit vote and terrorist attacks have catapulted issues such as national identity, security and immigration
• 10s30s OAT curve should bull flatten if election risk is contained, as the back end of the French curve has been under pressure given long-end supply, which will ease for the rest of the year
  • While 10s30s could bear-flatten if the election results lead to a loss of confidence in EMU irrevocability, offering protection
• With QE and in the current low-yield environment, OATs should remain well bid vs non-core markets and 10s30s OAT flatteners vs bunds appear cheap