French Bonds, Euro Spike After French Candidate Bayrou Endorses Macron, Le Pen's Chief Of Staff Detained

Update: as expected Macron has expected Bayrou"s alliance offer, AFP reports. It is still unclear if Bayrou has official withdrawn from the presidential campaign.

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European assets spiked from near session lows, with the Euro and French OATs jumping, dragging Bunds lower and pushing US indices to intraday highs after French politician Francois Bayrou announced he was endorsing Emmanuel Macron in the upcoming presidential election, without saying if he decides not to run.

"This alliance can bring something to the country," Bayrou told reporters, warning that the stakes were too high to have so many candidates in the race for the Elysee. Bayrou, 65, a pro-EU politician who won about 9 percent of first round votes when he ran in the 2012 presidential vote, is polling around 5-6 percent according to some surveys.

Commenting in a press conference in Paris, Bayrou said “we are in such a risky situation and to this situation we need an exceptional answer." He said that he spoke to Macron one week ago. A Macron spokesman was not available for comments.

The reason for the market"s optimistic reaction is that if Bayrou had decided to run, it was expected that he may have eroded some of Macron"s support in both the first and the runoff round, making a Le Pen presidency more likely as she would then have had to face Fillon.That said, according to the latest Elabe poll reported yesterday, Le Pen"s odds would actually increase in the first round should Bayrou drop out, rising from 27% to 28%, to wit:

With Bayrou:

And without.

In any case, the market took the news as favorable, and Bund futures promptly slid around 20 ticks in two minutes, while French 10y bonds jumped, sending yields lower by ~5bps on the session. The German-France 10y spread has also tightened around 5bps, while in the US Treasury bond futures slide from session high.

French German spreads:

And EURUSD:

Meanwhile, earlier in the day, French police detained far-right presidential candidate Marine Le Pen’s bodyguard and chief of staff in custody on Wednesday for questioning over alleged misuse of European Union funds to pay parliamentary assistants, Le Pen’s lawyer said according to Reuters. Le Pen denounced the latest move in a financial sleaze case that has landed her in the spotlight alongside another leading candidate, Francois Fillon, a right-winger being investigated over public funds he paid to his wife and children.

Wary that her image and lead position in polls of voting intentions could be hurt, Le Pen on Wednesday said she was convinced voters would not fall for what her lawyer Marcel Ceccaldi called a “manipulation” designed to destabilise her.

“The French can tell the difference between genuine scandals and political dirty-tricks,” Le Pen, who has previously denied any wrongdoing in the affair, told reporters.

The two held for questioning are Le Pen’s bodyguard, Thierry Legier, and her chief of staff, Catherine Griset, key figures in an investigation opened following demands by the European Parliament that Le Pen repay money she is accused of wrongly paying the two.

Wednesday’s detentions followed a police raid on Monday on Le Pen’s National Front party headquarters on the western edge of Paris, while she was abroad.

Fillon’s poll ratings fell after the scandal concerning him surfaced in late January but they have since steadied and he is more or less neck-to-neck with Macron for the other slot in the May 7 duel.

Selling Of French Bonds Accelerates As Le Pen Extends Lead, Macron Tumbles In Latest Poll

Another day, another headache for owners of French bonds. In the latest French presidential poll, conducted by Elabe for TV broadcaster BFMTV, Marine Le Pen extended her lead by another 2-3 points, while support for her primary centrist challenger Emmanuel Macron, tumbled by 5 points in the last week.

The poll, released today, showed that Le Pen"s lead rose by either 1.5 points to 27% or by 2 points to 28%, depending whether centrist candidate Francois Bayrou would take part in the election...

... or withdraw.

The most surprising result, however, is the plunge in Macron"s odds, who lost five points in the first round voting intentions compared to the same poll conducted two weeks ago. Macron, who is the former French economy minister and who is running on a pro-EU platform, fell to third place behind right-wing candidate Francois Fillon, whom he eclipsed earlier in the month after a major embezzlement scandal erupted in which Fillon was accused of using public funds to pay for his family"s wages. Fillon gained 3 points in both variations of the poll.

But more concerning for her opponents, was the notable gains Le Pen made in the second round, where while still trailing behind both Fillon and Macron, she has seen a 4 points gain in the past week, shrinking the difference between Macron in the runoff round to 59-41. Until several weeks ago, she was firmly in the 20% range.

Meanwhile, as we have observed virtually every single day in the past three weeks, the better Le Pen does the polls, the higher French yields rise, and the greater the spread to German bunds....

... over fears that a Le Pen victory would be the last nail in the coffin for the Eurozone. Le Pen"s FN party has warned it would take France out of the Eurozone, return to the French franc, and would redenominate billions in French debt, a step which leading economists and rating agencies last week declared would to "massive sovereign default" and global financial chaos.