With its sprawling cast and ignominious plot twists, the French presidential election rivals Balzac’s La Comédie humaine. Amid the anti-euro populism, centrist candidate and ex-banker Emmanuel Macron is the pin-up for many investors. If he wins the election, whose first-round poll is on Sunday, expect to see a relief rally in French bonds. Just do not expect it to last.

Obligations Assimilables du Trésor, or Oats as long-dated French bonds are known, have been reflecting worries about the election for months. When the poll ratings of right winger Marine Le Pen rose in the polls in February, the difference between 10-year bond yields in France and Germany stretched above 80 basis points — a four-year high.

Scepticism about Ms Le Pen’s chances resulted in a few weeks of relative calm when the spread narrowed to 50 basis points. Then Jean-Luc Mélenchon, a leftwinger who decries bankers as “parasites”, entered the mix. The chance of a run-off in early May between the two radicals looked real and the spread between French and German yields widened to 75 basis points.

The conventional view is that a win for mainstream candidates François Fillon or Mr Macron will result in the spread narrowing sharply. If it reverted to 30-odd basis points — where it was six months ago — that would be an attractive gain from current levels. Across the rest of Europe, yields on government bonds outside Germany might also tighten. Italian bonds — in a larger and more liquid market than Oats — could offer even greater gains.

Only the brave or foolish bet one-way on a binary event. Open interest in active French government bond futures, a gauge of hedging activity, hit a four-year high in February, says Eurex, a derivatives exchange.

If you believe Mr Macron will win, consider buying French bonds. But be aware any post-election rally may be short-lived. The aftermath of a Macron victory will be renewed interest in the EU economy. Investors should ask whether a sub 1 per cent yield for 10 years in French bonds is suitable reward when inflation and growth is rising. The answer is No.

Email the Lex team at lex@ft.com

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