French bond futures fell 23 points in early Asia trading. The euro also fell 0.2% to around USD 1.0821, while Euro Stoxx 50 Index futures remained stable. The left’s success in France’s legislative elections has brought attention to their push for a significant increase in government spending.

Initial projections for France’s legislative elections indicate a surprising victory for the leftist alliance. The New Popular Front, which includes the Socialists and far-left France Unbowed, is expected to secure between 171 and 205 seats in the National Assembly.

This unexpected outcome has raised concerns among money managers, as it may lead to increased government spending and fiscal policy easing.

While the French left alliance will be unlikely to win an absolute majority, the result could still impact French assets in the coming days. The outcome could also lead to political uncertainty and concern about the influence of the left within a hung parliament, potentially affecting the yield on the nation’s 10-year debt.

The Left alliance’s proposed policies, including a significant increase in government spending, have raised concerns about France’s budget deficit. With the deficit already exceeding the 3% limit allowed under European Union rules, the outcome of the elections may further exacerbate these fiscal concerns.

S&P Global Ratings downgraded France in late May due to the government’s failure to meet its budget deficit targets after increased spending during the Covid pandemic and energy crisis. This downgrade highlights the economic challenges that France may face shortly due to the election outcome.

The potential impact of the left’s success in the elections has led to market uncertainty and may affect the value of French bonds compared to their peers. This outcome could also lead to demands for higher spread in the market until the new government clarifies its fiscal position.