French Left Weighs United Front Against Le Pen; Bonds Drop (1)

(Bloomberg) -- The left-wing laggards in France’s presidential campaign are talking about joining forces, a move that may elbow out centrists from the second round and improve the anti-euro Marine Le Pen’s chances of victory.

Socialist candidate Benoit Hamon, now fourth place in polls, told France Info radio on Friday that he had begun discussions on a united effort with Jean-Luc Melenchon, a former Socialist who now enjoys fringe backing. Hamon also said he has reached out to the Green Party’s Yannick Jadot about a single candidacy.

“What we need to discuss is the conditions under which we could come together and who in the end could -- between Yannick Jadot, Jean-Luc Melenchon and myself -- be best suited to embody the left in the second round of the French presidential race with a program that could be shared,” Hamon said.

The campaign twist was bad news for French bondholders: polls suggest that a unified left bid would dent the chance of pro-market candidate Emmanuel Macron, the current front-runner, to advance to the May 7 decisive round. That would leave voters a choice between Le Pen and either Hamon or Melenchon, neither of whom is seen as market-friendly. It might also broaden support for the anti-euro, anti-immigration Le Pen.

A runoff against either Hamon or Melenchon “is the most favorable situation for Marine Le Pen to win,” Bruno Jeanbart, an OpinionWay pollster, said in an interview.

“For a candidate from the left to win he needs, at minimum, to win as many votes from the right in the second round as Marine Le Pen. If it’s Emmanuel Macron a transfer of votes from the right is easy to imagine. If it’s a candidate much further to the left anchored in a radical program, that’s a different story.”

As a result, French notes extended their slump, driving the yield difference between French and German 10-year bonds to the most in a week, while the nation’s stocks and the euro dropped.

CAC 40 Drop

French 10-year yields climbed two basis points to 1.03 percent in Paris, widening the spread over similar-maturity German bunds by 6 basis points. France’s CAC 40 fell 0.9 percent at 4.30 p.m. in Paris, led by bank stocks.

“This is clearly not a positive for French bonds,” said Kim Liu, a strategist at ABN Amro Bank. “It increases the odds of a Le Pen victory, with French bonds already being very vulnerable to political risks. It’s too early to call if this is a game changer as we do not know how serious the merger talks are, but certainly this is not something the market is waiting for.”

Hamon said in the radio interview that he shares similar ideas with Melenchon on several topics, such as pushing for a greener economy. But the Socialist candidate also highlighted differences in their programs, notably on the European Union.

“I believe in reviving European integration,” he said. “I’ve talked about that in the context of an energy treaty, a fiscal treaty that I’m working on with Thomas Piketty, boosting investments to move toward a green economy or a European security policy.”

Jim Shields, a professor of French politics at Aston University in Birmingham, England, has doubts the two could agree on a partnership.

"It’s unthinkable," he said in a phone interview. “You’re dealing with two egos who want to be the single candidate and I think that’s going to be the deal-breaker."

Melenchon said he was open to talks, according to a letter to Hamon published on the website Mediapart.

In the most comprehensive monthly poll of voters’ sentiment published Thursday, Macron opened up a 4.5 percentage-point advantage over his closest challenger, former Prime Minister Francois Fillon.

Le Pen leads the polling for first round with 26 percent, but all surveys so far have shown that she’ll lose by a significant margin in the runoff. Hamon and Melenchon together would have about 28 percent support. The Ipsos-Sopra Steria survey of 15,874 people published by Le Monde newspaper was conducted between Feb. 7 and Feb. 12.

--With assistance from David Goodman Angeline Benoit Blaise Robinson Stephen Spratt Geraldine Amiel and Stefania Spezzati

To contact the reporter on this story: Gaspard Sebag in Paris at gsebag@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Alan Crawford at acrawford6@bloomberg.net, Geraldine Amiel

©2017 Bloomberg L.P.