France election fears ease as polls suggest Macron will beat Le Pen

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Concerns over the French presidential election seemed to have eased slightly on Monday with the yields on the 10-year French bond falling.

The yield on the 10-year government bond dropped to 0.881 percent on Monday morning – the lowest level seen in the last month.

"The slight deterioration in exit polls for Marine Le Pen in the run-off ballot helps stabilizing market sentiment," Norbert Wuthe, senior analyst at BayernLB, told CNBC via email.

This is "further supported by the news that the two socialist candidates won't form a coalition," he added.

Until now, investors have been concerned about the growing support for the far-right leader Marine Le Pen and the outcome of the French vote, which takes place over two rounds in April and May.

The fact that the far-left candidate Jean-Luc Melenchon and the socialist runner Benoit Hamon haven't managed to form an alliance reduces the chances that there will be a final round with both far-left and far-right candidates.

"It's all closely linked to the probability of a Marine Le Pen victory in the final two candidate Presidential round. That would be the horror scenario for the markets and the EU given her radical euro-exit policies," Jan Randolph, head of sovereign risk at IHS Markit, told CNBC about Monday's market moves.

Polls released over the weekend have shown that the centrist candidate Emmanuel Macron is well placed to beat Le Pen in the second round and become the next president of France.

A poll published by the newspaper Le Figaro showed Macron winning the second round against Le Pen with 58 percent of the votes. Another poll conducted by Odoxa/Dentsu-Consulting said Macron would beat Le Pen with 61 percent against 39 percent.

The good polling numbers for the independent runner Macron follow the announcement of the centrist Francois Bayrou that he would join forces with the former economy minister. Bayrou is a veteran in French politics, which could help the 39-year-old Macron winning the confidence of some French voters.

Macron announced Monday plans to slash government spending by 60 billion euros ($63.5 billion) and cut 120,000 public-sector jobs. He also unveiled intentions to reduce some taxes and support green energy investments.

"However, we do expect a yield increase in the second half of the week when increased euro zone inflation numbers and duration heavy French supply will weigh on the market," Wuthe added.

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