I’ve talked a ton about this, but I think it’s important to continually track how different assets are or aren’t pricing in the risk associated with a prospective Marine Le Pen victory in France.
Let’s try a fun game. Below, find charts showing OATs versus bunds, 2014 France CDS versus the 2003 contracts, and spreads on foreign-law versus domestic-law French corporate bonds.
Look at these charts and ask yourself the following: “Is French election risk being appropriately priced?”
There are three answers: 1) “Probably,” 2) “Not really, but at least the market seems to be trying,” and 3) “WTF! No, not at all.” See if you can correctly apply the labels (the ovals should help).