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French bonds steady on optimism of avoiding snap election

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Macron to name new PM by Friday evening

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France-Germany bond yield spread remains elevated

Oct 9 (Reuters) - French bonds held on to gains from the

day before on optimism the country can avoid a snap election and

agree a budget, after talks between caretaker Prime Minister

Sebastien Lecornu and other political leaders.

Lecornu resigned on Monday after failing to reach

compromises with other parties on fixing the country's shaky

finances, and had been tasked by President Emmanuel Macron to

defuse the crisis.

Although no agreement has been reached, Macron said on

Wednesday that a new prime minister would be named within 48

hours and that most lawmakers were against snap elections,

following Lecornu's discussions.

RELIEF FOR MARKETS

France's 10-year bond yield was little changed

on the day at 3.515%, after falling 5.5 basis points (bps) the

day before on optimism that a deal to avoid new elections could

be reached. Bond yields move inversely to prices.

Germany's 10-year bond yield, the benchmark for

the euro area, was up 1 bp to 2.686%, pushing the spread between

France and Germany's 10-year yields to 82.8 bps, down from

nearly 88 bps on Monday.

The gap, the premium investors require to lend to France

rather than Germany, remains elevated and is among the highest

in the euro zone.

"Whilst we understand that avoidance of fresh elections will

be a relief for markets, it is hard to see a budget that does

little to tackle fiscal sustainability being a massive spread

tightener over the medium term," said analysts at RBC Capital

Markets in a note.