Bond investors are far from convinced that the risks surrounding the French election are over despite the broader market exuberance following the outcome of the first round.
French 2Y yields have only corrected about half of the risk premium over German 2Y yields since the election (and in fact are widening out today)
Furthermore, as Bloomberg details, open interest, a measure of the number of contracts outstanding, has dropped only 10 percent so far this week even as French government bond futures surged after the race for presidency narrowed to Emmanuel Macron and Marine Le Pen.
A decline in open interest amid a rally in an asset typically suggests short-covering rather than new positions being added… but the modest size of the drop suggests few investors are relieved enough to pile back into 'still cheap' OATs.
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